As many as 21 state governments are running a deficit budget in the 2024 fiscal year in spite of the anticipated and exponential increases in the allocations to them from the Federation Account Allocation Committee (FAAC).
Since June 2023 after President Bola Ahmed Tinubu terminated the fuel subsidy regime, the allocations from the centre to states and local governments have increased by about 40 per cent, a huge sum that, if applied to developmental projects, could make tremendous impact. In spite of this monthly windfall, many states have planned to borrow as much as N1.65 trillion to fund their budgets. Unfortunately, the state Houses of Assembly approved those proposals, without thorough scrutiny.
As economists would argue, it is not a crime for the government to take foreign or local loans. But when such loans are not applied in a manner that they create prosperity from which the principal and their interests are repaid, then such loans become more harmful than beneficial. Most of the loans taken by state governments have become a burden to their successors; the funds used to repay them were like waste of resources because many of those loans did not yield the desired benefits. It takes fiscal discipline for any government to apply loans to developmental projects and reap their benefits. Most state governments have not demonstrated that kind of discipline, as roads, water, environmental, educational, and many infrastructural projects funded through local and external debts are uncompleted, poorly executed, and end up as unmanageable ‘elephant projects’. Such ‘elephant projects’ bring shame and regret to their initiators. Abandoned projects, funded by loans from Bretton Wood institutions, litter Nigerian states, but state governments are under obligation to repay them with interest. The funds that should have been put into other projects are channeled into loan repayments.
As at June 2024, the total public debt of Nigeria, both local and external, was put at N121.67 trillion, according to the Debt Management Office (DMO). As at the second quarter of 2023, the 36 states and the Federal Capital Territory (FCT) owed N6 trillion local debts and N4.3 trillion external debts, a total of about N10 trillion. These debts are serviced and repaid from the monthly allocations to the states and FCT, a situation that has left a bitter taste in the mouth of many state governors who are compelled to repay loans taken by their predecessors. In many cases, there is no visible evidence of the application of those loans, but a surface probe into some of the loans would show that the funds were misappropriated or even stolen. The federal government is living with the consequences of the misapplication of local and foreign loans. Today, about 70 per cent of government revenue is channeled into debt servicing, leaving only about 30 per cent for development projects.
At the rate both the federal government and state governments yield to the temptation of local and external loans, Nigeria may be inching towards a serious debt crisis. Unless it is curtailed, the governments may be unable to service the debts, i.e. pay the interest on the loans and the principal amount borrowed.
The reason why countries enter into debt crises is simply the unproductive use of the debt money, which does not generate sufficient returns on the borrowed money to enable the country to pay off the interest and the principal as at when due. As it seems to be happening in Nigeria today, governments in debt crisis are compelled to take a second debt in order to offset the commitments on the first debt, creating a vicious process of indebtedness.
It is clear that many state governments are eager to borrow because of the loan-pushing strategies of developed countries and international financial institutions. They entice developing countries with easy to access loans, usually at an attractive repayment schedule. However, economists have proved that where capital is available on demand, the use of such capital becomes unproductive, leading to an expenditure spree among its users. When developed capitalist countries entice developing countries with their finance capital, it is usually to exploit the natural and human resources of the borrowers through subterfuge, because every loan comes with political strings firmly attached to them. For instance, the federal government had to remove the fuel subsidy, devalue the Naira, increase tariff on electricity, and engage in other ‘reforms’ that threw Nigerians into poverty, in order to cope with the strings that the International Monetary Fund (IMF) attached to loans taken by the previous administration. Nigerians are groaning from unbearable high cost of living and even now, a hike in the pump price of petrol, in order to please lenders of finance capital to Nigeria.
No matter the excuse being advanced by state governments, we insist that the federal government must not guarantee more loans to them. The DMO must intervene and ensure that toxic loans that impoverish Nigerians are rejected. State governments can achieve a lot by first blocking the massive leakages in Internally Generated Revenues (IGRs) and, secondly, judicious utilisation of allocations from FAAC. No more loans to state governments under any guise.
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