Thirty-one state governments owe the Central Bank of Nigeria, CBN, a total of N339.9bn obtained to pay workers’ salaries between 2015 and 2023, a document obtained from the apex bank has revealed.
The document also stated that the sub-nationals had yet to pay an outstanding of N339.97bn and a loan default of N1.31bn as of September 2023.
The fund, which was facilitated through the Salary Bailout Facility, a strategic intervention by the CBN aimed at alleviating the fiscal pressures faced by the states, was part of the over N10.3tn intervention fund made available by the apex bank under the immediate former CBN governor, Godwin Emefiele.
In contrast, the current governor, Olayemi Cardoso, stopped the programme, stressing that the apex bank could not continue to fund more intervention programmes amidst the current economic crisis.
The CBN said the SBF was designed to help the state governments to clear the backlog of salaries owed their employees. The initiative underscores the critical role of the CBN in stabilising the country’s financial landscape, especially in times of fiscal distress faced by state administrations.
The programme, which has been closed according to its status report, involved key stakeholders, such as the benefiting state governments, Deposit Money Banks, the Federal Ministry of Finance, and the Accountant-General of the Federation, all of whom played pivotal roles in implementing and managing the bailout package.
A breakdown of the report showed that 31 state governments benefited from the initiative, with N457.17bn disbursed. Despite the substantial disbursement, the principal repayment made so far totalled N117.21bn, with interest repayments at N45.21bn.
It also showed that the states collectively borrowed N457.17bn to pay salaries to their respective civil servants and an overdue amount of N1.31bn.
The report further said the top beneficiaries of the bailout facility included Imo, which received N20.46bn; Kogi, N20.26bn; Kano, N20.21bn; Oyo, N16.81bn; and Osun, N15.93bn.
The inability of the states to perform their primary obligation to their workforce has been a front-burner issue in recent times amidst clamour by labour unions to increase the minimum wage from the current N30,000.
Last year, state governments borrowed about N46.17bn from three banks to pay salaries between January and June, according to an analysis of the half-year 2023 financial statements of Access Bank, Fidelity Bank, and the Zenith Bank Group.
It was observed that the states borrowed the most from Access Bank in the six months, with a record of N42.97bn loan.
This was followed by Zenith Bank with N1.78bn, and Fidelity Bank with N1.42bn in the six months.
The PUNCH also exclusively reported the inability of 24 states to pay workers’ salaries this year without having to wait for federal allocations from the central government despite improved federal allocations.
The development also means that the respective wage bills of the affected states surpassed their various internally generated revenues, raising concerns about workers productivity and state governments’ efficiency in internal revenue generation.
The 24 states include Bayelsa, Ondo, Yobe, Sokoto, Taraba, Plateau, Oyo, Niger, Nasarawa, Kogi, Kebbi, Katsina, Jigawa, Gombe, Ekiti, Ebonyi, and Borno.
Others are Benue, Bauchi, Adamawa, Akwa Ibom, Cross River, Abia, and Delta.
In 2023, state governors got the most Federal Account Allocation Committee disbursements in at least seven years. The rise in FAAC allocations to the three tiers of government, especially the states, followed the removal of petrol subsidy and currency reforms of the current administration. The reforms have reportedly led to a 40 per cent boost in income.
Financial experts have raised concerns about states’ spending on recurrent expenditure, highlighting the need to embrace financial innovations.
‘States risk insolvency’
The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the report indicated that a majority of states were not financially sustainable and were at risk of insolvency if there was no boost in investment.
He said, “This issue is a fiscal sustainability problem, showing that many states are not fiscally sustainable and need to work towards it; and that the states need to do a lot more to attract more investments to their states so that their level of dependence on the Federal Allocation Accounts Committee would reduce.
“Even as we speak, many of them are also in debt, and by the time they pay salaries and service their debts, there is not much left to improve on infrastructure. It’s in the interest of the sustainability of the states for them to be more creative in generating more revenue and attracting more investment to their states so that they can generate more revenue.
“Secondly, we also need to address the issue of fiscal federalism because some of the states don’t have power over some resources in their domain and can’t bring investors into it. For instance, mining is controlled mainly by the Federal Government, you get permission from them and revenue is remitted to them. So we need to revisit the issue of restructuring to help states have more control over resources within their domain.”
A development economist, Aliyu Ilias, said many states had yet to fully develop themselves as industrialised and marketable to attract investors.
Ilias urged governors to develop an area of strength they could leverage to attract foreign investments.
To address these ongoing challenges, the report recommends that an increased focus be placed on enlightening state investment companies about the benefits of Public-Private Partnerships. Such partnerships could significantly enhance the state’s Internally Generated Revenue, improving fiscal health and reducing dependence on bailout facilities for salary payments.
This delay underscores the broader challenges of fiscal management and sustainability within the states, highlighting the need for more robust financial strategies and practices.
N4.94tn domestic debt
The Federal Government borrowed a total sum of N4.94tn from domestic sources in the first six months of the administration of President Bola Tinubu, indicating significant dependence on loans.
This is according to the latest debt stock document obtained from the Debt Management Office on Saturday.
According to the document, the domestic debts rose by N4.94tn from N48.3tn recorded in June 2023 to N53.3tn as of December 31, 2023.
Sunday PUNCH observed that although external loans reduced by $664m in the six months ($43.2m in June and $42.4m in December), the figure increased by $901m when compared with $41.5m in September and $42.4m in December.
The DMO in a statement on Friday said the public debt soared by 10.7 per cent to N97.34tn in the fourth quarter of 2023 from N87.91tn recorded in the previous quarter.
Delving deeper into the specifics, the DMO explained that the N97.34tn public debt comprised N59.12tn in domestic debt and N38.22tn in external debt.
It said the increase was largely due to new domestic borrowing by the Federal Government to part-finance the deficit in the 2024 budget, and disbursements by multilateral and bilateral lenders, adding that loans from multilateral sources constituted 49.77 per cent of the country’s external debt stock, while loans from bilateral sources constituted 16.02 per cent.
It said, “Nigeria’s public debt stock as of December 31, 2023, was N97.34tn or $108.229 bn. This amount comprises the domestic and external debt stocks of the Federal Government of Nigeria, the 36 state governments, and the Federal Capital Territory.
“There was an increase of N9.43tn over the comparative figure for September 2023, which was largely due to new domestic borrowing by the FGN to partly finance the deficit in the 2024 Appropriation Act and disbursements by multilateral and bilateral lenders.”
An analysis of the domestic debts showed that the government borrowed N2.29tn from the FGN bonds market with the figure increasing by 5.45 per cent from N41.97tn recorded in June 2033 to N44.26tn as of December 31, 2023.
The government also borrowed N1.79tn from treasury bills, N8.47bn from savings bonds, N350bn in Sukuk loans, and N549.02bn from promissory notes.
Under external debt, increased borrowing was observed from the African Development Bank and the Exim Bank of China, with a total loan of $541.5m.
The increased debt is, however, contradictory to promises made by the Tinubu administration to reduce borrowing and focus more on increasing revenues.
The Minister of Finance and Coordinating Minister for the Economy, Wale Edun, at different forums, noted that the country needed to improve its revenue standing because it could not afford to rely on borrowing going forward.
Reaffirming the country’s revenue position, the Minister of Budget and Economic Planning, Abubakar Bagudu, declared at the public presentation of the 2024 budget that revenue generation remained the major hindrance to the country’s fiscal viability.
“Revenue generation remains the major fiscal constraint to Nigeria’s fiscal viability. However, the government is reviewing current tax and fiscal policies to improve revenue generation. The target is to increase the ratio of revenue to the GDP from less than 10 per cent currently to 18 per cent within the current term of this administration,” he said.
This is a position backed by the World Bank, which believes that Nigeria’s debt servicing cost is on course to hit over 200 per cent of its revenue by 2026 until its recent reforms and policy redirection. The bank, however, believes that recent reforms in the country are set to boost revenues and keep debt levels below 40 per cent of the GDP over the medium term.
It predicts that debt servicing cost is set to fall from about 101.5 per cent of total revenue in 2022 to 43 per cent in 2026.
Economy sick – Experts
Experts have said that the Nigerian economy is currently sick as a result of the increasing debt profile.
While debt financing has helped other countries to boost production and increase capital infrastructure, experts say Nigeria has no business borrowing more funds with the current debt situation.
An economist at Sankore Global Investment, Jonathan Thomas, said the country’s debt profile was hindering economic growth, noting that the only justification for the huge debt was if the country recorded a positive growth in capital stock.
Thomas stated, “This increasing rate of debt in Nigeria is undoubtedly not the best because it is hindering the growth rate. The high amount of the revenue is used for debt servicing; at least not less than 90 per cent of our revenue is used for debt servicing. Before we can justify the debt rate, we must see a positive impact on our capital stock, but there has not been any proof to show that our capital stock is increasing; so, the increased debt is used for consumption and debt servicing.
“It doesn’t make any sense when revenue is used to service debt. It is better to run the economy based on internally generated revenue.”
He noted that the government needed to plan towards offsetting the previous debts to sustain positive economic growth.
Thomas added, “The government needs to plan towards offsetting the debts from the past years, especially those of the previous administration.
“The idea of debt for now is not rational. No one can justify this. The government is still borrowing because it feels what is for everybody is for no one.
“The government needs to be selfless enough to tackle the debt situation of the country.”
An economist at Lotus Beta Analytics, Shedrach Israel, said Nigeria’s high debt profile gave the impression that the country could not sustain itself. He also called on the government to tackle the recurring debts.
He said, “It is shocking to know that we are still borrowing as a nation because petrol subsidy removal is meant to provide more revenue to the government. The government is already doing a lot to restructure the tax system, so there are enough sources of income. The implication of borrowing more cannot be over-emphasized. It’s reducing the country’s revenue for capital infrastructure. Borrowing gives a false sense of liquidity. It is like eating the future today and bearing the consequences later.
“Borrowing gives the impression that the economy is not viable and cannot survive outside of borrowing.
“For every money that’s borrowed, there are budgetary allocations because the loans cannot be paid within a short time. The amount spent on debt servicing is almost more than the budgets of some ministries, departments, and agencies of the Federal Government.
“The government has to put an end to borrowing, especially borrowing without public knowledge.”
