BudgIT’s 2020 State of States report is a snapshot of the fiscal health of all 36 States. It is important to note that The Fiscal Sustainability Index uses four key metrics or stress tests to provide a fair overall fiscal sustainability ranking of the states.
According to Mr. Gabriel Okeowo, BudgIT’s CEO and Principal Lead, “No single metric, when isolated, provides a fair assessment of any state and none of the tests used evaluates states’ fiscal status for insolvency.”
For instance, Lagos State has its total recurrent expenditure and ‘accelerated’ loan repayment amounting to about N555bn; butthis is not an indicator of insolvency as BudgIT’s 2020 methodology for calculating State’s total revenue only used net FAAC allocation for all 36 States and their Internally Generated Revenue (IGR) – sourced from National Bureau of Statistics – which brought Lagos State’s total revenue to N516.62bn as opposed to N644bn if other sources of revenues were added. We believe that the fair approach was to stick with the net FAAC payments and IGR due to the disparate nature of the public finance framework among Nigerian states. Other revenues such as capital receipts, grants and investment income were not added due to their volatility. We believe that states must position their finances in a way that their recurrent expenditure can be serviced solely by their central and internal revenue sources which was the basis for one of our metrics.
“The goal of the 2020 report is to encourage States to reduce their overhead costs and debt burdens while improving their IGR and capital expenditures. Many forward thinking governors who ranked top 10 in our 2020 Fiscal Sustainability Ranking are already doing so; Rivers State improved the most in its IGR between 2018 and 2019 with a year-on-year growth of N27.62bn followed by Lagos and Kaduna states with IGR growths of N16.55bn and N15.51bn respectively” added Gabriel Okeowo.
We have always cautioned states on the risk of exposure of exchange rate volatility inherent in foreign loans taken by their governments. We are also of the opinion that states should trim their overhead costs by applying rigorous efficiency measures – an instance in point – Bayelsa State with the smallest population in Nigeria mounting up recurrent spend and loan repayment obligations of N147.16bn, well above what Kano State incurs given its large population. Notwithstanding, from our 2020 State of States analysis, we believe that a high number of all 36 states show varying degrees of distress. BudgIT is committed to working with all state governments and other stakeholders in identifying early warning signs that compromise the fiscal sustainability of Nigeria’s subnational economies through our annual State of States Fiscal Sustainability Ranking.
Media and Communications Lead