BudgIT, a civic advocacy group and accountability organisation, says the 36 states and the FCT needed a rapid build-up of capacity in deploying customised and innovative Public-Private Partnership (PPP) models to deliver on critical infrastructure projects and programmes.
Mr Abel Akeni, BudgIT’s Research and Policy Advisory lead, said this on Tuesday, in Abuja, at the official presentation of the state of States reports 2021 edition, under the theme: “Fiscal options for building back better”.
“This is especially in key sectors like Health, Education, Housing, and Agriculture given the shrinking fiscal space in which states are operating and will continue to operate in the next few years,” he explained.
While presenting the 2021 report, Akeni said that the organisation examined the fiscal health of states, using four metrics namely; “the ability of states to meet their operating expenses with IGR and VAT, states’ ability to cover their operating expenses and loan repayment with their total revenue.
“How much fiscal room states have to borrow more, and the degree to which each state prioritises capital expenditure with respect to their operating expenses,” he explained
According to him, Rivers state, once again, topped the overall 2021 Fiscal Performance Ranking, indicating that the fiscal fundamentals of this state, compared to others in the country, were more prudently managed.
In the overall ranking, two states, Ebonyi and Kebbi made it as new entrants to the top 5 category.
“This was driven largely by growth in both states’ IGR as recorded by the NBS. Ebonyi state grew its IGR by 82.3% from N7.5bn in 2019 to N13.6bn in 2020, while Kebbi state grew its revenue by 87.02% from N7.4bn in 2019 to N13.8bn in 2020.
Meanwhile, Ogun state (now 19th) and Kano state (now 22nd), dropped out of the top 5 category due to a sharp decline in their IGRs in 2020.
“Cumulatively, the 36 states’ total debt burden increased by N472.63bn (or 8.78%) from N5.39tn in 2019 to N5.86tn in 2020, driven largely by exchange rate volatility which saw the value of the naira jump from N305.9/$1 in 2019 to N380/$1 as of Dec. 31 2020,” he stated.
He pointed out that states with the highest foreign debt were significantly hit due to negative exposure to exchange rate volatility; “these states include: Lagos, Kaduna, Edo, Cross River and Bauchi.
”Furthermore, five states accounted for more than half (that is 63.63% or N300.7bn) of the net year-on-year sub-national debt increase of N472.63bn for all the states between 2019 and 2020: the states are Lagos, Kaduna, Anambra, Benue and Zamfara.”
The lead researcher said that based on each state’s 2020 revenue, five states –Ebonyi, Rivers, Anambra, Cross River — in the South and Kaduna state in the North, prioritized investment in infrastructure by spending more on capital expenditure than their operating expenses as a result of which they appeared at the top of the ‘Index D’ ranking.
Akeni said that 19 states, including eight oil-producing states, saw a year-on-year decline in their capital expenditures, while 17 states were still able to improve their investment in capital expenditure, from 2019 levels despite fiscal constraints induced by COVID-19.
“Without a doubt, economic shocks from the COVID-19 pandemic took a toll on states’ Internally Generated Revenue (IGR) and their share of federally collected revenue in 2020; thus the need to explore options for building back the sub-national economies cannot be overstressed.
“A critical first step for states would be to rapidly block financial leakages that could further drain the little available revenue or future revenue.
”From the Annual Performance Assessment (APA) results of states under the State Fiscal Transparency, Accountability And Sustainability (SFTAS) programme, released in Q2 2021, only 7 states in Nigeria had functioning Treasury Single Accounts (TSA), an otherwise critical fiscal strategy that gives states more control over their revenues and could help them reduce leakages,” he explained.
He further noted that the results were better for states that had introduced reforms to block leakages, due to the existence of “ghost workers” and other forms of payroll fraud, adding that about 24 states and 27 states respectively, had introduced “Biometric” and “BVN” use in payroll management”.
Akeni cited procurement processes as one of the biggest areas through which revenue leakages could occur, noting that for this reason, states needed to adopt open contracting principles to minimize instances of inflated contracts and other forms of procurement and procedural fraud.
Mr Laoye Jaiyeola, Chief Executive Officer, Nigerian Economic Summit Group (NESG), in his keynote speech explored the issues of states’ non viability gauging from their fiscal performance, while also highlighting structural and pragmatic solutions to deal with the issues.
“The state of our States has been a key concern to development enthusiasts owing to the pivotal role they play in the national development process.
“Before the COVID-19 pandemic, most of our states had shown severe signs of non-viability. For example, in BudgIT’s 2019 report, only three out of 36 states had enough IGR plus VAT and other derivatives to cover their recurrent expenditure.
“We are yet to see the facts and figures in the 2021 report, but my understanding of the facts indicates that we are not yet out of the woods. This imposes a critical burden on states to accelerate efforts towards exploring innovative fiscal options to build back better,” he added.
Jaiyeola added that there were currently sub-optimized revenue options available to states.
“For example, to fully harness property tax options, we need an effective housing policy that supports a vibrant market for seamless exchange between real estate developers and renters.
As for the VAT controversy, he said his opinion was that states should be allowed to collect non-import VAT on consumption within their territories, while the import VAT component can be collected by the federal government.
Meanwhile, the BudgIT Chief Executive Officer, Mr Gabriel Okeowo, noted that the 2021 report gave a clear indication of states that need to revamp their strategies urgently in order to have the right resources to invest in their people.
Okeowo added that the report evaluated the ability of states to meet key spending obligations, using their various revenue sources, how much fiscal space they have for investing in capital infrastructure and how attractive states were to creditors considering the size of their total debt when compared to their revenue generation capacity.
“It gives a clear indication of which set of states need to revamp their fiscal strategy urgently, in order to have the right resources to invest in their people.
“The state of States report also helps identify which states would need additional support from local and international stakeholders in improving their internal revenue generation capacity, building more competencies in PPP or in implementing other fiscal reforms and which states need to mainly consolidate on progress already made,” he explained.
In the 2021 BudgIT report, Rivers, Ebonyi, Anambra, Lagos and Kebbi states topped the states’ 2021 overall fiscal performance rankings.
Meanwhile, Ogun and Kano states dropped out of the top 5 race to 19th and 22nd positions, due to a sharp decline in their IGR.
BudgIT annually publishes the largest and most comprehensive data-driven report which analyses the fiscal health of all 36 states, with options for building sustainable sub-national economies.
The report comes with a ranking of the fiscal health of each state based on a set of criteria outlined in the state of States ranking methodology.
