States and the Rising Weight of Debt


Wednesday, November 08, 2017 3:03PM / Proshare Research 

Download PDF Here

The dip in oil price coupled with relatively low production led to erosion in government revenue. This dislocation exposed the weakness in Nigeria’s revenue pool. Interestingly, these structural fault lines rubbed on the states, as they had increased their debt levels, just like the Federal Government while the boom was on. Thus, the high dependency ratio on statutory allocation and weak internal generated revenue became inevitable. 

The anti-clockwise movement in the cycle left the finances of states hard pressed, thereby leading to an automatic fall in consumption. Certainly states are limited with respect to fiscal multipliers, as they are not totally risk free.  High oil prices had masked both the weak productive level of many states and the low taxable population.  At the same time it brought to public consciousness, the size of total debt held by states.

Taking a clinical view at the productive level of each state have become necessary, so as to determine the productive capacity of each state of the federation. Moreover, it gives an insight on how resources are managed by each state over the years.  A study of the size of public debt of each states and the trajectory of such debt is carried out in this edition of our Proshare Confidential Report.

In this edition, the debt of individual states is weighed against their level of productivity, as a measure of their fiscal sustainability. It also determines the chunk of total debt held by states to the aggregate credit over a 5 year period. Even though states are not totally risk free, they still enjoy preference over corporates on the risk ladder.

We also studied the external debt of states both prior to devaluation and post devaluation, to ascertain the needed hint on the direction and distribution of total external debt among states.

Download PDF Here

As a follow up to the study, projected revenue of each states and their composition is made available. Thus it allows the study determine:

·         The Average dependency ratio by states on statutory allocation

The States which are below that have their gross revenue below 50%

The Index capture of expenditure

The Internally Generated Revenue contributed per individual

Measures were provided on how best to reduce debt and shore up revenue in the short term. The study also pointed out that states that are quick to identify their competency and improve competitive advantage will end up increasing their output. States that are able to hewn their value added tax’s properly and improve rural roads will reduce the dependency ratio.  

The study further made a case for improving the quality of human capital, as a tool to improve output and increase its taxable population. States which have addressed poverty by improving human capital, increasing opportunity and reducing poverty are less vulnerable to dependency.  

Certainly the study presented the macro picture of the economy and the threat of a secular stagnation, if policy recalibration is not taken. Adhering to tradition foreign tit–bits was provided but this time we focused on Argentina by accessing the reforms and trade-offs made in the face of political headwinds – which is important in a region where ideological battle fronts are vivid. 

Related News

1.       The latest Business Competitiveness Ranking: How close is Nigeria to the Promised Land?
2.      Nigeria Up 24 places To 2013 Levels In World Bank Doing Business Report
3.      State of States - The 2017 Edition
4.      Nigeria gains Momentum on Ease of Doing Business
5.      NCCN Sub-National Competitiveness Index: Lagos leads overall ranking
6.      Ease of Doing Business Report: Nigeria’s Policy Reforms Bearing Fruit!
7.      Nigeria Ranked 125 Out of 137 Economies in the Global Competitiveness Report 2017–2018
8.     Nigeria is Moving Towards Mid-table in Ease of Doing Business
9.      Senate Passed a Motion on the Need for Intervention in the Etisalat NG $1.2bn Debt Crisis
10.  Proceedings of Nigerian Senate 10th October and Request for Debt Approval
11.   The Nigerian Debt Debate: Deconstructing The Debt Story
12.  Moving Towards Debt Sustainability
13.  Stakeholders call for deepening of Nigeria’s Debt Capital Market, to achieve growth
14.  FGN Debut Sukuk Offer Oversubscribed
15.   The better news on external debt
16.  Soaring cost of domestic debt service
17.   Federal Republic of Nigeria to Issue Diaspora Bond
18.  Expected Surge in Domestic Debt Stock
19.  Lagos State has the highest domestic and foreign debt profile in 2016 - NBS
20. June 2017 FGN Savings Bond Opens June 5th
21.  Stanbic IBTC renews its NGN100 billion Multicurrency Commercial Paper Programme with FMDQ
22. Anticipated Rise in Rates - PMA Expected Stop Rates and Secondary Market Indicative Rates
23. Frequently Asked Questions (FAQs) on Investment in Government T-Bills
24. Scope for the DMO to pick and choose
25.  Stanbic IBTC Launches 20.00bn Commercial Paper Programme on FMDQ
26. Summary of Auction Results for May 2017
27.  DMO offers Higher Interest Rates for the 2-Year & 3-Year FGN Savings Bond at 13.189% and 14.189%
28. Diaspora Bonds - A Financing Option for Nigeria

Related News