Rivers Now the State of States

Thursday, October 26, 2017 9:45AM / FBNQuest Research

Weattended yesterday the London launch by BudgIT of the 2017 edition of its Stateof 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.

Theleague tables are eagerly awaited by the state governors, as the World BankGroup’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, recurrentexpenditure/internally generated revenue (IGR) + 13% derivation + VAT, andtotal 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 ismore than four times that of any other state. We would suggest a refinement ofthe 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 atconcessionary terms by lenders such as the World Bank. Further, it isnecessarily guaranteed by the FGN and is subject to more rigorous analysis thanthat of the banks for naira loans.

This is an index of record without a forward-looking element. The reportoffers useful sections on each state, identifying the sectors with the mostpotential 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-2014highlighted the dependence of states on the monthly payout, leading in moststates to the emergence of salary and pension arrears.

The index is the work of an independent research body, and enjoyed thesupport of the Bill and Melinda Gates Foundation.

Our well-known pedantry obliges us to comment upon data sources. TheBudgIT table on page 77 cites the Office of the Accountant General of theFederation, the National Bureau of Statistics and the Debt Management Office asits external sources.

For state government finances, we have generally quoted the older datasupplied by the CBN for its longer historical series. In the ideal world, allsources would draw upon audited fiscal statements from the states. It wouldappear that this is not always possible. At least one state has complained atthe figure provided for IGR.