Thursday, October 26, 2017 9:45AM / FBNQuest Research
We
attended yesterday the London launch by BudgIT of the 2017 edition of its State
of States report. The headline is the fiscal sustainability index in which,
based upon 2016 data, the five leading states in descending order are: Rivers,
Lagos, Ogun, Kano and Akwa Ibom.
The
league tables are eagerly awaited by the state governors, as the World Bank
Group’s Ease of Doing Business indices are closely monitored by the FGN.
Protests at poorly-received index placings by the injured parties are common.
The ratios for recurrent expenditure/total revenue, recurrent
expenditure/internally generated revenue (IGR) + 13% derivation + VAT, and
total debt stock/recurrent revenue have weightings of 50%, 35% and 15%
respectively in the compilation of the index.
The Lagos State rating is weakened by its debt stock of N735bn, which is
more than four times that of any other state. We would suggest a refinement of
the methodology to distinguish between naira and fx debt. In the case of Lagos,
the fx debt accounts for N423bn of the total. This is all provided at
concessionary terms by lenders such as the World Bank. Further, it is
necessarily guaranteed by the FGN and is subject to more rigorous analysis than
that of the banks for naira loans.
This is an index of record without a forward-looking element. The report
offers useful sections on each state, identifying the sectors with the most
potential and projects likely to boost IGR in the years ahead.
It shows the limitations of federalism, Nigerian-style. “True federalism””
provides fiscal autonomy. In this case the slide of the oil price in mid-2014
highlighted the dependence of states on the monthly payout, leading in most
states to the emergence of salary and pension arrears.
The index is the work of an independent research body, and enjoyed the
support of the Bill and Melinda Gates Foundation.
Our well-known pedantry obliges us to comment upon data sources. The
BudgIT table on page 77 cites the Office of the Accountant General of the
Federation, the National Bureau of Statistics and the Debt Management Office as
its external sources.
For state government finances, we have generally quoted the older data
supplied by the CBN for its longer historical series. In the ideal world, all
sources would draw upon audited fiscal statements from the states. It would
appear that this is not always possible. At least one state has complained at
the figure provided for IGR.
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