Having been inundated with fiscal shocks from the Covid-19 pandemic in 2020 which plummetted government revenues, the 36 states of the federation commenced a rebound as the cumulative revenues of the states grew by 9.19% from the N4.69tn earned in 2020 to N5.12tn in 2021. Cumulatively, there was a 33.66% year-on-year growth in the aggregated Internally Generated Revenue (IGR) of the 36 states, from N1.2trn in 2020 to N1.61tn in 2021.
However, the bulk of the states still rely heavily on federally distributed revenues to implement their budgets. While at least 50% of the total revenue of 33 states were federal transfers, 13 states relied on federal transfers for at least 70% of their total revenues. Being faced with declining revenues owing to Nigeria’s subsidy regime and the volatile price of crude oil, over-reliance on federal transfers is becoming increasingly unsustainable. Hence states as a matter of urgency need to wean themselves off the dependence on federally distributed revenues by significantly improving their capacity to mobilise revenues internally.
Occasioned by the need to stimulate their economy to build back from the Executive Summary economic doldrums of 2020 and improve service delivery, the cumulative expenditure of the 36 states increased by 27% from N5.23tn in 2020 to N6.64tn in 2021. Notwithstanding, while 31 States increased their total expenditure from the previous year, 5 States reduced their expenditure—with Zamfara having the highest decline of 15.59%. Several States implemented reforms to identify ghost workers and eliminate payroll fraud, leading to decline in the year-on-year growth of the personnel cost of 7 states. However, the cumulative personnel cost of the 36 States grew by 5.38% from N1.46tn in 2020 to N1.54tn in 2021. Interestingly, 9 States reduced their overhead cost from the previous year, signalling a reduction in the cost of governance. Conversely, 11 States increased their overhead cost from the previous year by more than 40%, with Akwa Ibom having the highest growth of 424.60%
Commendably, cumulative spending on capital expenditure by the 36 States grew by 52.52% from N1.77tn in 2020 to N2.70tn in 2021. 8 States increased the capital expenditure year-on-year by more than 100%, however, just 5 States—including Anambra, Ebonyi, Cross River, Kaduna, Rivers—proritized capital expenditure over operation expenses, signalling the prioritisation of investments in infrastructure, job creation, and human capital development. Speaking of spending in critical social sectors like Health and Education, 24 States spent below the subnational average of N1977.07 on Population health spending per capita. Similarly, the education spening per capita of 22 States were below the subnational average of N3954.99. With an education spending per capita of N380.65 and N365.30 respectively, Imo and Ondo had the least investments in education per capita in 2021.
Subnational Debt Outlook
The cumulative debt stock of the 36 States grew by 8.68% from N5.86tn in 2020 to N6.37tn in 2021. A more diagaggregated view of the subnational debt show that 11 states reduced their total debt liability, with Delta State having the most impressive decline of 33.84%. Four states—Oyo, Yobe, Ogun and Sokoto—grew their total debt stock by more than 40% from 2020. The 5 most indebted states—Lagos, Kaduna, Rivers, Ogun, and Cross River—are responsible for 37.09% of total subnational debt. Kogi State, with a foreign debt year-on-year growth of 85.65%, ranked 1st among the 17 States that grew foreign debt in 2021. The four states with the highest dollar-denominated debt ($250mn and above)—Lagos, Kaduna, Cross River and Edo—are the most susceptible to exchange rate volatility. However, all States need to check their appetite for acquiring dollar-denominated loans, especially in an era of low foreign direct investments and dwindling foreign reserves. 6 States—Plateau, Imo, Cross River, Osun, Kaduna and Ekiti—exceeded the debt to revenue ratio solvency threshold of 200% in 2021. While Zamfara was the only State that exceeded the debt service-torevenue solvency threshold of 40%, no State exceeded the solvency thresholds of 40% and 60% respectively for debt-to-GDP ratio and personnel cost-torevenue ratio.
Rankings and State’s Comparative Viability
Rivers State maintained its overall fiscal performance ranking of the 1st position from last year. While two states, Kaduna and Cross River made it to the top 5 on the overall fiscal performance ranking, Yobe State dropped to the bottom 5 having fallen 13 places from 21st in 2021 to the 34th position in 2022. On Index A, just 2 States (Lagos and Rivers) generated more than enough revenues internally to take care of their operating expenses. Comparatively, the operating expenses of Yobe and Bayelsa (the least ranked states on index A) was more than 7 times the revenues generated by both States Internally, reinforcing the heavy reliance on federal transfers and budget support to fund their budgets. On index A1, save for 3 states which ranked the least—Anambra, Kogi and Kebbi—33 states experienced an increase in their IGR from the previous year, with 13 states growing their IGR by more than 50%. Jigawa, Delta, Ebonyi, Akwa Ibom and Nassarawa ranked 1st - 5th respectively on Index C which assessed the debt sustainability of the 36 states. Furthermore, Cross River, Ogun, Imo, Osun, Plateau were the bottom 5 states on Index C. Lagos State, with capital importation of $31.78bn between 2019 and 2021, received 99.19% of the cumulative capital importation for 36 states of the federation. Interestingly, 11 states received no capital importation between 2019 and 2021.
Subnational Governance Reforms for a New Era
In the last five years, there have been initiatives by multilateral institutions to incentivise governance reforms in states across the federation. One such Population commendable initiative is the World Bank-funded, State Fiscal Transparency, Accountability and Sustainability (SFTAS) Program for Results (PforR).
The SFTAS Program for Results—which has midwived several subnational governance reforms, leading to relatively increased fiscal transparency and accountability, strengthened domestic revenue mobilisation, strengthened efficiency in public expenditure and strengthened debt sustainability. On fiscal transparency, the 36 states of the federation currently publish in timely manner their proposed budgets, approved budgets, budget implementation reports, audited financial statements for both the States and the Local Governments. In the same vein, many states have enacted an Audit Law that grants operational and financial autonomy to the Offices of Auditors-General of the State and Local Governments, thereby empowering their supreme audit institutions to effectively hold governments accountable. 35 States, excluding Taraba, have captured the biometric and BVN data of at least 70% of the civil servants and pensioners on their payroll, and linked the captured data to their payroll management system. Cumulatively, 35 states (excluding Taraba), has a total of 848,483 civil servants and 498,097 pensioners on their payroll. As result, at least 15,397 ghost workers have been identified and eliminated in 13 states across the federation.
Importantly, only few states have been able to establish and operationalise a state-level functional Treasury Single Account (TSA) to ensure that it covers atleast 70% of all its finances. The non-implementation of the TSA creates loopholes for revenue leakages and the mismanagement of scarce revenues. All states need to establish and fully operationlaise their TSA. Many states have improved procuring practices by enacting a legislation for public procurement that conforms to the UNCITRAL Model Law. However, a lot of states are yet to fully implement e-procurement to ensure that all MDAs are covered. Similarly, a number of States are yet to ensure that all the schedules of contract awarded for the year are published online as required under the Open Contracting Data Standards and in line with the procurement laws/guidelines. Non-implementation of procurement law provisions on the full publishing of contracts slows down beneficial ownership reforms at the subnational level, which is one of the best ways to eliminate procurement fraud in relation to Politically Exposed Persons (PEPS).
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