Concerns about the financial insolvency of many states in the country have deepened following recent reports that no fewer than 15 of them face imminent bankruptcy. This is largely due to their poor Internally Generated Revenue (IGR).
According to figures from the National Bureau of Statistics (NBS) and a financial intelligence publication, Economic Confidential Magazine, the affected states are those with 2015 Internally Generated Revenues below 10 percent of their Federation Account Allocation (FAA) from June, 2015 to May, 2016.
The reports revealed that states that cannot survive without the monthly allocations from the Federation Account (FA) include 13 states from the North; one from the South East and one from the South West. The states in the North with IGR below 10 percent of their Federal Account Allocation are: Yobe, which reportedly generated a meagre N2.2 billion in 2015, compared to a total of N57.4bn received from the Federation Account from June, 2015 to May, 2016. This IGR is just 3.9 percent of its FA allocation.
Others are Zamfara with an IGR of N2.7bn compared to N56.6bn received from the FA. Borno’s IGR within the same period was N3.5bn, compared to N78.7bn from FA, representing 4.5 percent, while Kebbi State generatedN3.5bn and got N64.8bn from FA, which is 5.5 percent of its allocation within the period under review.
Other Northern states that posted abysmally low IGR within the past one year under review are Taraba with N4.1bn against N56bn from FA, Nasarawa, N4.4bn IGR and N50.5bn Federal Allocation (8.5%) and Adamawa, with N4.4bn IGR and N62.2bn from FA, which is 7.1 percent.
From the South-East, Imo State tops the list of states with IGR below 10 percent of its FAA, with N5.4bn IGR compared to N71.6bn FAA. Ekiti State, in the South West, had annual IGR of N3.2bn and N50.4bn FAA, representing 6.5 percent.
However, the report painted an impressive financial picture of five states with robust IGR. Top on the list is Lagos State with N268bn. Instructively, Lagos’ IGR last year was higher than that of 32 states combined, excluding Rivers, (N82.10bn), Delta (N40.80bn), Ogun (N34bn) and Edo (N19.11bn), which are among the top five. The 32 other states reportedly generated a total of N257bn in 2015.
The report also shows that the IGR of the 36 states of the Federation totaled N682.67bn in 2015 compared to N707.85bn in 2014. This is a drop of 3.56 percent, or N25.18bn. Anambra, Enugu, Akwa Ibom, Oyo and Kano States are said to be doing well in their IGR drives.
Altogether, the report by NBS and the Economic Confidential Magazine is both revealing and disturbing. It confirms what is already known, that most of the states are financially distressed. For more than one year now, these states have been saved by bailouts and other financial stimulus from the Federal Government.
We recall that the Federal Government had in July 2015 approved N804.7bn intervention package to assist cash-strapped states to offset part of their outstanding workers’ salaries. Government also worked out a fresh repayment plan for their heavy financial obligations. In addition, in April this year, government deferred their N10.9bn restructured loan repayments to give them time to put their finances in order.
Only two weeks ago, the Federal Government also said it had packaged fresh loans totaling N90bn for troubled states from the private sector through the issuance of bonds in the bond market. The loan, however, comes with stringent conditions that the states must meet before they can access it.
Clearly, the insolvency of many states has reopened the debate on fiscal federalism, as well as the overriding need for the states to look inwards, diversify their economies, generate more revenue and be less dependent on handouts from the Federation Account that are dwindling every month due to the fall in oil prices in the international market.
More importantly, the states should see their beleaguered financial profiles as a wake-up call to design strategies to boost their IGR.
It is sad that states have remained tied to the apron strings of the Federal Government due to their inept management of their funds and their reckless expenditure on white elephants.
They should strengthen their Boards of Internal Revenue and make them more transparent and accountable. We must state that the financial health of the states has profound consequences for our democracy and the wellbeing of their citizens. Therefore, every measure should be put in place to bolster the economies of the states and make them more buoyant and less dependent on financial allocations from the Federation Account.