As against the Debt Management Office (DMO) threshold of borrowings by states, no fewer than 18 states of the federation have incurred debts in excesses of 50 percent of their annual revenue.
The disclosure, which was contained in the Fiscal Responsibility Commission (FSC) 2016 Annual Report, puts Lagos, Osun and Cross River states debt profiles over 480 percent to their respective annual gross revenue.
In the report obtained by PUNCH on Monday, the FSC observed that the development was contrary to the guidelines of the DMO on debt sustainability, which envisaged that the debt status of each state should not exceed 50 per cent of the statutory revenue in the previous 12 months.
“In the light of the DMO’s guidelines on the Debt Management Framework, specifically, sections 222 to 273 of the Investment and Securities Act, 2007 pertaining to debt sustainability, according to the guidelines, the debt to income ratio of states should not exceed 50 per cent of the statutory revenue for the preceding 12 months,” the report noted.
But in contrary, only few states observed the guidelines set by DMO, as the debt status of most of the states analysed by FRC showed a debt to revenue ratio of more than 100 percent as of December 31, 2016, covered by the report.
In the list of states with highest debt to gross revenue ratio were Lagos (670.42 per cent), Osun (539.25 per cent), Cross River (486.49 per cent ), Plateau (342.01 per cent), Oyo (339.56 per cent ), Ekiti (339.34 per cent ), Ogun (329.47 per cent), Kaduna (297.26 per cent) and Imo (292.82 per cent).
Others were Edo (270.8 per cent), Adamawa (261.96 per cent), Delta (259.63 per cent), Bauchi (250.75 per cent), Nasarawa (250.36 per cent) , Kogi (221.92 per cent), Enugu (207.49 per cent), Zamfara (204.91 per cent), and Kano (202.61 per cent).
The debt to net revenue ratio of the states puts some of the states in even more precarious situations. For instance, Lagos debt to net ratio stood at 930.96 percent, while Cross River and Young states accumulated a debt to net revenue ratio of 940.64 percent and 535.34 percent respectively.
On the list of states whose debts did not exceed the 50 per cent ratio by more than 100 per cent are Anambra, Borno, Jigawa, Kebbi, Sokoto, Yobe and the Federal Capital Territory.
The debt to revenue ratio is very important in debt analysis as it can give an indication of the capacity of the debtor to service and repay the debt.
Even when a state debt to revenue ratio exceeds 50 percent, the FRC said it is not enough to conclude that such state had over-borrowed, hinging this on the fact that no borrowing limit is yet set for the governments in the federation.
“It should be noted that the fact that some states exceeded the threshold of 50 per cent of their total revenue is not an indication that they over-borrowed as the debt limits of the governments in the federation are yet to be set,” FRC cautioned.
“Furthermore, only total revenue is used for the foregoing analysis as comprehensive data on the states ’ Internally Generated Revenue were not available. In any case, the IGR on the average is not more than eight per cent of the states’ total revenue except for Lagos State. In essence, the non – inclusion of the IGR may not distort the result of the analysis.
“Therefore, there is a need for each of these states to work towards bringing their respective consolidated debts within the 50 per cent threshold of their total revenue in order to guarantee a general public debt sustainability in the country.”