Only Rivers, Lagos, Anambra Can Survive With IGR, VAT, Says BudgIT Report
BudgIT, the foremost civic-tech organization, on Tuesday, launched the 2020 edition of its annual States of States, based on their fiscal health using four metrics namely: their ability to meet operating expenses with Internally Generated Revenue and Value Added Tax, and ability to cover their operating expenses and loan repayment with total revenue.
The report titled “Fiscal Options for Building Back Better,” which is coming at a time when states in southern Nigeria seek to enact laws allowing them to collect VAT proceeds showed that only Lagos, Rivers, and Anambra of the 36 states in the country could meet their operating expenses obligations with a combination of their IGR and Value Added Tax (VAT).
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 at December 31, 2020.
“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 (63.63% or N300.7bn) of the net year-on-year subnational debt increase of N472.63bn for all the states between 2019 and 2020: they are Lagos, Kaduna, Anambra, Benue, and Zamfara.” said Abel Akeni.
Based on their 2020 revenue profile five states- Ebonyi, Rivers, Anambra and Cross River in the south, and Kaduna in the north, prioritized investment in infrastructure by spending more on capital expenditure. These states appeared at the top of the ‘Index D’ ranking, it noted, adding that 19 states, including eight oil-producing states, saw a year-on-year decline in their capital expenditure, while 17 others were still able to improve their investment in capital expenditure, from 2019 levels despite fiscal constraints induced by COVID-19.
The ranking, which is also based on how much fiscal room the states have to borrow more, and the degree to which they prioritise capital expenditure with respect to operating expenses, showed that Rivers State again topped the ranking.
This, according to a statement by Damilola Ogundipe, communications Lead at BudgIT, showed that the fiscal fundamentals of River State, when compared to its peers, are more prudently managed.
In the overall ranking, Ebonyi and Kebbi – made it to the top five categories, driven largely by growth in the IGR of both states as recorded by the National Bureau of Statistics. While Ebonyi State grew its IGR by 82.3% from N7.5bn in 2019 to N13.6bn in 2020, Kebbi State followed with 87.02% revenue growth from N7.4bn in 2019 to N13.8bn last year.
Conversely, Ogun and Kano States dropped out of the top five category to 19th, and Kano State 22nd, due to a sharp decline in their IGR in 2020.
the statement noted, is BudgIT’s signature analysis that provides citizens, CSOs, stakeholders, and policymakers with robust insights on ways to implement financial and institutional reforms that will improve states’ fiscal performance and sustainability levels.
Without a doubt, the statement continued, 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 subnational 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) program, released in Q2 2021, only seven 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 states reduce leakages. 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. About 24 states and 27 states respectively, had introduced “Biometric use in payroll management” and “Bank verification number use in payroll management”.
“Procurement processes are one of the biggest areas through which revenue leakages can occur. Hence, the need for states to adopt open contracting principles to minimize instances of inflated contracts and other forms of procurement and procedural fraud.” Okeowo added.
Furthermore, to complement efforts in raising revenue and blocking revenue leakages, states also require a rapid build-up of capacity in deploying custom and innovative Public-Private Partnership (PPP) models to deliver on critical infrastructure projects and programs. 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, the report stressed.