Thursday, November 20, 2014 5:41 PM / FBN Capital Research
In response to the decline of N100bn in monthly gross revenues flowing into the federation account since July, the CME has called for enhanced monitoring of borrowing by state governments.
The background is the more than 30% fall in the international price of UK Brent/Bonny Light crude since mid-year, along with the poor record of most state governments for internal revenue collection. Oil revenues are by far the largest element of the monthly gross statutory allocation to the three tiers of government.
Their decline generally creates a shortfall in the distribution in relation to budget estimates for the month, which should prompt an augmentation (a payout from the excess crude account). However, the CME has now capped drawings from the account by year-end at U$$2bn from the current balance of US$4.1bn.
The state governments, therefore, are being squeezed on bank borrowings and face the prospect of further falls in the monthly payout from the Federation Accounts Allocation Committee.
The DMO last week published figures for the domestic debt of the 36 state governments and the FCT at end-2013. It showed a total of N1.45trn (US$8.5bn) or N1.71trn (US$10.0bn) including two states for which it had to provide estimates (Bayelsa and Ekiti).
Predictably, the most indebted states were Lagos (N279bn) and two oil-producers (Rivers and Akwa Ibom). When we look at the data for the previous year, however, we can identify some difficulties in data collection. In several cases, the outstanding debt decreased markedly and implausibly: from N62bn to N42bn for Edo, for example, and from N3bn to less than N1bn for Kebbi.
The DMO’s series excludes bond issuance, for which we estimate outstanding obligations at a further N460bn.
Three parties (the federal finance ministry, the Securities and Exchange Commission, and the DMO) together authorise bond issuance by states.
Together they examine debt sustainability but they also keep an eye on the electoral calendar: they discourage capital raising by state governments near the end of their term for projects which their successor administrations may not support. The CME’s latest warning reflects these concerns.