State Governors’ Debt Accumulation Raises Red Flag for Economic Sustainability, By Abdul-Azeez Suleiman

The recent revelation that 13 new state governors have collectively borrowed N226.8bn within their first six months in office raises concerns about the sustainability of sub-national debt in Nigeria. This borrowing trend, as highlighted by the Debt Management Office (DMO), indicates a significant increase in the debt profile of these states, with both domestic and external debts being accrued.

According to the DMO’s report, a total of N243.95bn in domestic borrowings and $298.5m (N265.37bn) in external borrowings were recorded by 16 state governors in the same period. The breakdown of these debts shows that some governors have taken on substantial financial liabilities in a relatively short time frame. 

For instance, Cross Rivers Governor Bassey Otu stands out with N16.2bn borrowed domestically and $57.95m from foreign creditors. Katsina and Niger states followed closely, with significant increases in their debt profiles. These figures highlight the financial pressure faced by state governments and the growing reliance on borrowing to meet their financial obligations.

The decision to borrow at such a scale raises questions about the fiscal management practices of these state governments. While borrowing can be a useful tool for financing development projects and infrastructure, excessive debt accumulation can lead to financial instability and undermine economic growth. It is imperative for state governments to exercise prudence and transparency in their borrowing decisions to avoid future debt crises.

The context of increased revenue from the Federal Account Allocation Committee (FAAC) adds complexity to the borrowing scenario. The uptick in FAAC allocations, attributed to the removal of fuel subsidies and currency reforms, has provided state governments with a boost in income. However, the decision to continue borrowing despite increased revenue raises concerns about the management of public finances at the state level.

In light of these developments, it is essential for state governors to prioritize sustainable debt management practices and ensure that borrowed funds are utilized effectively for the benefit of their citizens. Transparent reporting on debt obligations and utilization of borrowed funds is crucial for accountability and good governance. State governments must also explore alternative sources of revenue generation and prioritize fiscal discipline to reduce dependence on borrowing.

With the country grappling with economic challenges and rising debt levels, prudent financial management is crucial for promoting sustainable development and ensuring the welfare of the populace. State governments must navigate these challenges with caution and adopt responsible borrowing practices to safeguard the financial stability of their jurisdictions.

The increasing trend of borrowing is a reflection of the challenging economic environment that they face. With dwindling revenue sources and growing expenditure demands, many states have resorted to borrowing to finance their budget deficits and fund capital projects. While borrowing can be a useful tool for financing development projects and stimulating economic growth, it must be done responsibly to avoid the pitfalls of excessive debt accumulation.

One of the key reasons why this borrowing trend has become alarming is the lack of transparency and accountability in the way state governments manage their finances. There have been reports of mismanagement and misappropriation of borrowed funds, leading to wastage and inefficiency in the execution of development projects. This has not only undermined public trust in the government but also put the financial stability of states at risk.

As Nigeria continues to grapple with economic challenges, including low oil prices, inflation, and currency depreciation, the need for improved fiscal management and accountability in Nigerian states has never been more critical. State governments must prioritize prudent financial management practices, including budget discipline, debt sustainability analysis, and monitoring of debt service payments, to ensure that borrowing is done in a responsible and sustainable manner.

State governments must strengthen their revenue generation efforts to reduce their reliance on borrowing. This can be achieved through broadening the tax base, improving tax compliance, and enhancing revenue collection mechanisms. By diversifying their revenue sources and reducing their dependence on oil revenues, states can build a more resilient fiscal framework that is less vulnerable to external shocks.

In addition to improving fiscal management and accountability, state governments must also invest in capacity building and institutional strengthening to enhance their financial management capabilities. This includes training finance officials, implementing financial management systems, and establishing oversight bodies to monitor and evaluate government spending. By building a strong financial management infrastructure, states can better manage their resources and improve the efficiency and effectiveness of public spending.

By prioritizing prudent financial management, strengthening revenue generation efforts, and investing in capacity building, states can promote sustainable development and ensure the welfare of the populace. It is imperative that state governments take these steps to navigate the current economic challenges and build a solid foundation for future growth and prosperity.