SUB-NATIONAL
PUBLIC FINANCIAL MANAGEMENT
PERFORMANCE REPORT FOR 2011
Table of Contents
List of Figures ............................................................................................................................................................................ 3
List of Tables.............................................................................................................................................................................. 3
Abbreviations and Acronyms ............................................................................................................................................. 4
Foreword .................................................................................................................................................................................... 5
Executive Summary ................................................................................................................................................................ 6
SECTION 1: INTRODUCTION .............................................................................................................................................. 9
1.1
Objective .................................................................................................................................................................. 9
1.2
Methodology........................................................................................................................................................... 9
Budget ..................................................................................................................................................................... 10
2.2
2.3
2.4
2.5
2.6
3.2
3.3
3.4
List of Figures
Figure 1.1: Budgets of States (2011) ....................................................................................................... 10
Figure 1.2: Budget and Total Revenue Spread for States (2011) .......................................................... 12
Figure 1.3: Total Revenue Distributions for States (2011) .................................................................... 13
Figure 1.4: Total Revenue for States (2011) ........................................................................................... 14
Figure 1.5: Public Debts for States (2011) .............................................................................................. 17
Figure 1.6: Solvency Ratios for States I (2011) ....................................................................................... 19
Figure 1.7: Solvency Ratios for States II (2011) ..................................................................................... 20
Figure 1.8: Liquidity Ratios for States (2011)......................................................................................... 22
Figure 1.9: Fiscal Service Sustainability for States (2011) .................................................................... 23
Figure 1.10: Population, Unemployment and IGR in Nigeria (2011) .................................................... 25
List of Tables
Table 1.1: Distribution of Domestic Debts of the 36 States as at December 31, 2011......................... 16
Table 1.2: Solvency Spread for States (2011) ......................................................................................... 20
CPIA
CSOs
DMO
DRI
FAAC
FIB
FMF
FRL
FSS
IGR
IT
Information Technology
JTB
MSMEs
NBS
NPC
PD
Public Debt
PDML
PFM
PPL
TR
Total Revenue
USD
Foreword
The Nigeria sub-National Public Financial Management (PFM) performance report is a baseline
analysis focusing on the 2011 PFM data for States. The PFM Report which sets the tone for a
number of quarterly reports on sub-National governance issues in Nigeria, is one of several
publications of the Nigeria Governors Forum Secretariat based on empirical data and policy-driven
indicators.
Over the years, a strong political will and commitment has led a number of States to implement
meaningful PFM reforms and these have stirred sustainable changes as well as glaring gaps in the
fiscal environment of these States. This report represents our strategy for advancing all aspects of
the Forums readiness to collectively confront the challenges of governance and ultimately build a
transparent, accountable and a truly democratic Nigeria. It serves as an empirical approach to
exercise oversight while stirring up robust participation amongst citizens.
From a methodological standpoint, our approach to entrenching good governance is largely
pragmatic: we believe the most appropriate methods should be identified to fit the operational
context. Whats most novel about this report is the approach to applying recommended governance
tools as it builds on a strategic set of PFM database developed by the Economic Unit of the
Secretariat.
The sub-National PFM performance report contains valuable information not only for our
principals the 36 State Governors, but also policy makers and planners in government and private
sectors, as well as researchers. It is a functional tool and planning instrument to be used at different
levels for the designing, implementation and monitoring of PFM governance in Nigeria.
Executive Summary
The sub-National Public Financial Management (PFM) performance report for 2011 reveals a 19.34
per cent compound annual growth rate for total budget of States from N1, 684.72 billion in 2005 to
N4, 866.16 billion in 2011.
Lagos, Akwa Ibom, Rivers, Delta and Bayelsa led States in budget allocations as they recorded
N445.18 billion, N415.9 billion, N361.9 billion and N214.59 billion respectively. These five States
represented 38.17 per cent of total planned public revenue and expenditure for the 36 States in
2011. Their counterparts including Yobe, Anambra, Kwara, Zamfara and Taraba presented the least
budgets comprising N69.22 billion, N66.9 billion, N60.61 billion, N59 billion and N58.7 billion
respectively for the fiscal year.
Findings showed that most States are steadily improving their performances in revenue generation
as total revenues stood at N3.05 trillion in 2011, comprising net FAAC allocations of N2, 563.72
billion (84 per cent) and IGR of N483.47 billion (16 per cent). The sub-national governments
earned N254 billion monthly or N8.4 billion daily in revenues with Lagos, Rivers, Akwa Ibom, Delta
and Bayelsa accruing the largest share (41 per cent) of the total revenues for States.
Public debt however was recorded at N1.48 trillion, comprising domestic debts reaching N1.15
trillion (77 per cent) and external debts of N334 billion (23 per cent). Percentage of flow to nonflow debts1 was 55.21:44.79 per cent, showing that a larger percent of domestic debts were
incurred from commercial bank loans and State bonds; while contractors arrears, pension and
gratuity arrears, government-to-government debts, salary arrears and other staff claims and other
liabilities made up 44.79 per cent of their total domestic debt for the 2011 fiscal year.
Lagos, Bayelsa and Cross River led States with the highest public debts relative to the total debt for
all States, with ratios as high as 16 per cent, 11 per cent and 7 per cent respectively; while Borno,
Jigawa and Yobe States recorded the least, each constituting less than 1 per cent of total debt for
States. Further, Borno, Jigawa, Oyo, Yobe, Osun, Katsina, Kano, Kebbi, Sokoto, and Nasarawa States
all had unhealthy dependence on external sources of public finance, with external debt components
all above 50 per cent of their total debts.
Non flow debts are unstructured payments with no contractual terms. They include contractors
arrears, arrears on pensions, gratuities, salaries and other staff claims, judgment debts and other
liabilities.
1
Solvency ratio findings for public debt and total revenues showed that no State was in breach of the
World Bank CPIA2 250 per cent threshold, although Cross River had reached a risk level of 199.21
per cent. Contrarily, solvency ratios comparing domestic debt to internally generated revenue
showed that most states had reached high risk levels compared to the DRI threshold3 of 92 per cent
to 167 per cent. Only eight States including Oyo, Katsina, Kano, Anambra, Yobe, Jigawa, Borno and
Lagos scored ratios below 92 per cent in 2011, as Cross River, Bayelsa, Bauchi, Ebonyi, Ekiti, Ondo
and Kogi led States with very high solvency ratios indicating over-reliance on federal allocations.
A further liquidity ratio analysis on average FAAC allocations and debt service deductions showed
that although no State reached the applicable 40 per cent threshold as applied by Nigerias debt
management agency, Edo, Abia, Gombe and Ekiti States where at high risk levels that required
effective precautionary measures.
Additionally, both Cross River and Ebonyi States witnessed deficit fiscal service sustainability in
2011, with N53.6 billion and N8.9 billion respectively, showing that public debt was higher than
total revenues for the period. Akwa Ibom, Delta and Rivers States recorded the highest surpluses
amongst other States for the review period.
Findings showed that budget realism remained a key challenge for most sub-National governments
in Nigeria as a result of poor budget formulation and implementation mechanisms. Addressing
these issues require establishing clear policy objectives, ensuring the availability of resources and
setting realistic timelines (given revenue, expenditure and borrowing constraints).
Commendably, a number of States now develop their annual budgets within a multiyear
perspective, through the preparation of medium-term revenue and expenditure frameworks; not
least to gain a full appreciation of the future spending implications of present policy decisions.
Recommended policy moves proposed by the sub-National Public Financial Management (PFM)
performance report for 2011 include:
The Country and Policy Institutional Assessment is a diagnostic tool that captures the quality of a countrys
policies and institutional arrangements - in this case, public sector management and institutions.
3 The Debt Relief International (DRI) solvency threshold, according to Nigerias debt management agency,
underscores the need for sub-national governments to grow their IGRs to reduce high dependence on their
statutory allocations in the running of their governments. This is to enable States free-up resources for
development projects
2
Define and agree to thresholds for assessing PFM sustainability indicators; and
In view of data challenges, States should commit to compile and publish accurate and timely
data on all sub-National PFM data.
SECTION 1: INTRODUCTION
This report provides an indicator-led framework to analyse key aspects of public finance for subNational governments in Nigeria. The assessment was conducted for the 36 States of Nigeria for the
2011 fiscal year and it discusses issues relating to maximizing public sector financial performance
and improving State economies through budgets, total revenue (internally generated revenue and
FAAC allocations), public debt (domestic and external), debt sustainability (solvency and liquidity
ratios) and fiscal service sustainability.
Public financial management entails the development of laws, organizations and systems to enable
sustainable, efficient, effective and transparent management of public finance. Its performance
would be judged on the basis of ratios relating debt stock and service to fiscal payment capacity.
The final section provides practical recommendations aimed at promoting fiscal discipline, and
enhancing efficiency in the use of public expenditures, while improving transparency and
accountability in the use of public resources.
1.1
Objective
The report seeks to develop a framework for carrying out in-depth analysis of Nigerias public
financial management system through an indicator-led structure. It sets the trend for monitoring
sub-national performances across States, and establishing a practical approach to fiscal peer review
in Nigeria.
1.2
Methodology
The methodology assesses budget, revenue, and debt performances across the 36 States of Nigeria
based on established assessment tools of the World Banks Country and Policy Institutional
Assessment (CPIA) and Debt Relief Internationals (DRI) solvency threshold; examining solvency
ratios, liquidity ratios and fiscal service sustainability for sub-national governments. The scope of
data focuses on 2011 PFM data sourced from States approved 2012 budgets, Nigerias Debt
Management Office (DMO) and the Joint Tax Board. Social indices for population across States and
unemployment rates as at 2011 are subsequently employed based on reports from Nigerias
National Population Commission (NPC) and Bureau of Statistics to define the level of correlation
linking population, unemployment and IGR across States.
Budget
Total budget for the 36 States summed up to N4, 866 billion in 2011, with Lagos, Akwa Ibom,
Rivers, Delta and Bayelsa States approving the highest estimates for their recurrent and capital
expenditures at N445.18 billion, N419.79 billion, N415.9 billion, N361.9 billion and N214.59 billion
respectively. The total budget for these top 5 States made up 38 per cent of the total budget of all 36
States. States with the lowest budget for the year under review include Yobe, Anambra, Kwara,
Zamfara and Taraba with budgets as low as N69.22 billion, N66.9 billion, N60.61 billion, N59 billion
and N58.7 billion (Figure 1.1)(see Appendix 1).
Figure 1.1: Budgets of States (2011)
10
Looking at how far the total revenue (IGR & FAAC allocations excluding grants and borrowing) of
States could finance their 2011 annual budget4, on average, the 36 States could finance 63.34
percent of their total budget from total revenues. The States with the highest revenue capacities in
relation to annual budgets include Anambra, Kwara, Taraba, Zamfara and Bayelsa States; these
States could respectively finance 94.03 per cent, 93.44 per cent, 86.31 per cent, 86.31 per cent and
77.89 per cent of their budgets primarily from total revenues (FAAC and IGR). On the other hand,
States that could only finance less than 50 per cent of their 2011 annual budgets from total
revenues include Nasarawa (49.41 per cent), Ekiti (45.85 per cent), Cross River (45.39 per cent),
Niger (42.11 per cent) and Edo (42.02 per cent) (Figure 1.2). In this regard, we expect that these
States would relatively have high public debts sought to augment these shortages.
You may wish to also provide (in addition) a table with columns for total expenditure budget, FAAC,
IGR, Total Revenue, and percentage surplus/deficit for each state.
Budget preparation remains one of the fundamental aspects of a States PFM performance; and
one of its major challenges in Nigeria is the absence of a standard provision for analysis and
presentation, hence, the discrepancy in data presentation and analysis amongst experts. More so,
States must not underestimate the importance of budget formulation and their capacities to sustain
them, as it remains the States key fiscal policy instrument for controlling aggregate demand and
the level of economic activity; the distribution of income; and the pattern of resource allocation
within the government sector and relative to the private sector. The budget document also sets the
tone for their consumption (public and private), gross investment, spending and trade pattern.
11
Figure 1.2: Budget and Total Revenue Spread for States (2011)
2.2
Total revenue in this report consists of net FAAC allocations and internally generated revenues.
These figures are sourced from Nigerias Debt Management Office, the Joint Tax Board5 (JTB) and
the 2012 budgets of States.
IGR for Borno, Delta, Nasarawa, Ogun, Ondo and Osun were sourced from JTB.
12
Bauchi, Cross River, Zamfara, Bayelsa, Niger, Akwa Ibom, Borno, Jigawa, Taraba and Ekiti States.
13
14
Re-pricing economic alternatives is another purpose of taxation policy. Specifically, taxation can be
governments main tool by which to influence the behaviour of their individual and corporate
citizens. Addressing externalities by e.g. increasing the costs of polluting behaviour, or the
incentives to save, can deliver substantial benefits7. These measures guide domestic revenue
mobilization, a key component of sustainable development.
2.3
Public Debt
Public debt constitutes debt owed by State governments to domestic and external lenders. As at
December 31, 2011, total public debt for the 36 States of Nigeria stood as N1.48 trillion comprising
domestic debts of N1.15 trillion (77.5 per cent) and external debts of N334 billion (22.5 per cent).
Contractors arrears, commercial bank loans and State bonds recorded the highest category for
domestic debts with 33.47 per cent, 30.23 per cent and 24.97 per cent respectively while N6, 015
million was still owed in salary arrears and other staff claims by the end of December 2011 (Table
1.1).
Flow debts from commercial bank loans and state bonds made up 55.21 per cent (N633.61 billion)
of total domestic debt stock flows; while non-flow debts from contractors arrears, arrears on
pensions, gratuities, salaries and other staff claims, judgment debts and other liabilities amounted
to 44.79 per cent (N514.12 billion). Flow debts are payments defined by agreements between the
creditor (or investor) and the State, non flow debts are unstructured payments with no contractual
terms.
Lagos, Bayelsa and Cross River led the total debt mix respectively with 16 per cent, 11 per cent and
7 per cent of the total debt for States. Borno, Jigawa and Yobe States however had the least public
debts at N3, 714.6 million, N5, 939.33 million and N6, 968.79 million, each constituting less than 1
per cent of total debt mix for States (Appendix 1). Other States that contributed less than 1 per cent
of total public debt for all sub-National governments include Anambra, Gombe, Katsina, Nasarawa
and Sokoto
Cobham, A. (2005). Taxation policy and development. OCGG Economy Analysis, (2)
15
Table 1.1: Distribution of Domestic Debts of the 36 States as at December 31, 2011
D EBT C A TEG OR Y
A M OUNT (N M IL L ION)
% OF TOTA L
CONTRACTORS' ARREARS
384,099.76
33.47
346,973.14
30.23
STATE BONDS
286,639.54
24.97
61,067.04
5.32
GOVERNMENT-TO-GOVERNMENT DEBT
28,397.11
2.47
6,015.49
0.52
34,538.66
3.01
1,147,731.76
100
16
17
2.4
Solvency Ratio
The solvency ratio of States determines their ability to service debts and achieve long-term growth
and sustainability. Here, it is measured in two streams (i.) the ratio of States public debt to total
revenue; and (ii.) the ratio of domestic debt to IGR. Although the terms bankrupt and insolvent are
often used in reference to governments or government obligations, a government cannot be
insolvent in the normal sense of the word. Debts taken by governments are usually not secured by
their assets, but by their ability to service these debts. If, for any reason, a government cannot meet
its interest obligation, it is technically not insolvent but is "in default".
(i.) Ratio of States public debt to total revenue:
Solvency ratio for the 36 States in 2011 was 49 per cent, with the highest ratio of 199.21 per cent
for Cross River and the least 6.09 per cent for Borno State. No State was in breach of the World
Bank CPIA 250 per cent threshold for solvency; however, Bayelsa, Ebonyi, and Cross River had
solvency ratios as high as 99.99 per cent, 123.56 per cent and 199.21 per cent respectively. Cross
Rivers State which had the highest solvency ratio fell only 20 per cent below the threshold. States
with the least solvency ratio were Jigawa and Borno States at 10.41 per cent and 6.09 per cent
respectively.
18
(ii.) Ratio of domestic debt to IGR: For this, the Debt Relief International (DRI) solvency threshold
of 92 per cent to 167 per cent was applied. Solvency ratio for the 36 states in terms of domestic
debt and internally generated revenue was 237.39 per cent, at a total domestic debt of N1, 147.73
billion and total IGR of N483.47 billion. Only 8 States scored below the 92 per cent threshold in
2011, they include Oyo (15.62 per cent), Katsina (16.20 per cent), Kano (33.82 per cent), Anambra
(52.20 per cent), Yobe (61.55 per cent), Jigawa (70.32 per cent), Borno (74.93 per cent) and Lagos
(76.86 per cent). Osun, Abia and Sokoto had indebtedness levels above 92 per cent, but just below
167 per cent.
Other States showed very high solvency ratios, with Cross River leading the riskiness with an
alarming 6, 024 per cent. Bayelsa, Bauchi, Ebonyi, Ekiti and Ondo also followed with solvency ratios
reaching high risk levels up to 2, 955 per cent, 1, 429 per cent, 1, 405 per cent, 1, 264 per cent and 1,
214 per cent respectively.
19
RISK LEVEL
CROSS RIVER
SOLVENCY RATIO
>3000
High Alert
1000>X<3000
400>X<1000
High Risk
167>X<400
Medium Risk
100>X<167
Low Risk
<92
Given that States sustainability or otherwise of domestic debts are by best practice to be measured
against their own revenues, an analysis of the domestic debts of the states to their IGR was
undertaken. In most cases, debt in default is refinanced by further borrowing. The result as shown
in the table above outlines the need for these governments to grow their IGRs to reduce excessive
pressure on their statutory allocations in order to free up resources for other developmental
20
projects. It is also noteworthy that Sub-national governments are solvent if they do not pursue
crowding-out policies that force the private sector into bankruptcy.
2.5
Liquidity Ratio
The liquidity ratio measures the ability of the State to service its debt as at when due. It is based on
the total 12-Month Average FAAC allocation and 12-Month Average Debt Service Deduction from
FAAC8. The relevant threshold of 40 per cent was applied to indicate States performances for the
2011 fiscal year. Total 12-Month Average FAAC allocation for the 36 States stood at USD1, 286.06
million while 12-Month Average Debt Service Deduction from FAAC was USD157.83 million, giving
a liquidity ratio of 12.27 per cent for the 36 States.
Although no State reached the 40 per cent threshold, some however reached high-risk levels,
including Edo (35.76 per cent), Abia (28.80 per cent), Gombe (27.37 per cent) and Ekiti (25.58 per
cent). Ogun, Osun, Kwara and Taraba had the lowest liquidity ratios at 1.87 per cent, 1.45 per cent,
0.57 per cent and 0.50 per cent respectively.
DMO (2012) Report on the Programme for the Establishment of Debt Management Departments and
Domestic Debt Data Reconstruction in the 36 States of the Federation and the FCT (2008 2012)
8
21
The liquidity assessment for States showed quite a sustainable performance in 2011 however,
States must maintain caution. For instance, Edo and Abia States exhibited high risk of servicing
their debts in the occasion of any sharp decline in oil prices, federal government revenues and more
specifically, federal allocation. International standard thresholds are important for States to
anticipate, measure and monitor sustainability as it allows them make informed choices about the
trade-offs between maintaining certain liquidity levels and the opportunity costs thereof.
2.6
Fiscal service sustainability is the difference between the total revenue and public debt. It shows by
how much the government can finance its public debt using its federal allocation and internally
generated revenue. Service sustainability for the 36 States for the 2011 fiscal year was N1, 565.93
billion. Commendably, most states had the financial capacity to cover both their domestic and
public debts for the year, with the exception of Cross River and Ebonyi who had deficits of N53,
586.46 million and N8, 904.81 million respectively. Bayelsa however, was at a risky level with a
surplus of only N19.23 million for the 2011 fiscal year, after public debt deductions.
22
Akwa Ibom, Delta and Rivers States had the highest fiscal service sustainability levels, with
surpluses reaching impressive highs of N199.12 billion, N144.55 billion and N186.14 billion.
Although a short-term fiscal indicator, the service sustainability measures the ability of State
governments to sustain current borrowings from domestic and external sources without
threatening government solvency or defaulting on some of its liabilities or promised expenditures.
This indicator helps to bring public finances back on a sustainable track. Whichever indicators are
used, the vital step is to analyse their trends and the underlying characteristics of the government.
If debt starts at high levels and is forecast to grow constantly over the long-term, without any
concomitant increase in revenues, debt levels are unsustainable, and the effect of this indicator
overtime could portend structural results. For example, some sub-national governments have
executed intensive infrastructure programmes, financed by loans which generated large debt
service burdens. These deprived the infrastructure of maintenance spending, leaving its quality
23
ultimately similar to the situation before the programme. If similar situations occur more
frequently, overall debt sustainability as well as fiscal equilibrium may be jeopadised9.
POPULATION, UNEMPLOYMENT, INTERNALLY GENERATED REVENUE. Does a relationship
exist?
This final section analyses generally, the relationship between population, unemployment and IGR.
It helps to raise questions that emanate from how well States take advantage of their population;
how far sub-national economic policies go in expanding their formal and informal sectors with the
aim of improving aggregate demand, consumption, trade and hence, taxation. Using data for the 36
States, the graph below shows the following:
i.
ii.
States with high population have higher opportunities for increasing IGR through substantive
population integration and economic participation. If more jobs are provided, the economy
expands, unemployment falls and the tax base of the State grows. The most explicit form of this
relationship is explicated in Lagos State as its urbanisation growth rate is a rapid 16 per cent. The
States share of Nigerias urban population is also a hefty 27.4 per cent according to UN-Habitat.
Commonwealth Secretariat (2009) Fiscal Sustainability of Debt, paper prepared by Development Finance
International (DFI), CEMLA, and Commonwealth Secretariat, April 2009.
9
24
Nigeria has experienced rapid urbanization in the last thirty years. The countrys urbanites now
account for 48.2 per cent of the population, compared to 23.4 per cent in 1975. The challenge for
most States is to design fiscal policies to absorb this large rural exodus and the resultant housing
shortages, traffic congestion, and environmental degradation. This facilitation stimulates private
sector participation (formal and informal) in aggregate economic activities.
Further, States that still show neutral or negative relationship between IGR and Population (poor
revenues to population ratio) have comparative advantages that they must take advantage of as
urbanization transports labour to other States (hence expanding the economies of other States),
opportunities for expanding their tax base falls. As States continue to fulfill required fiscal
obligations, they must take advantage of their human and natural resources if they have low
population levels, they must build sustainable frameworks to attract skilled, semi-skilled and
unskilled labour. If they are highly populated however, they must maximize their comparative
advantage in expanding their economies.
In any case, the infusion of this private sector perspective ensures that investment opportunities
are consistently created for sustainable growth and development.
25
3.1
Budget Performance
Findings show that total budget for the 36 States of Nigeria from 2005 to 2011 had a compound
annual growth rate of 19.34 per cent; from N1, 684.72 billion in 2005 to N4, 866.16 billion in 2011.
This achievement has been due to a number of regulatory and policy initiatives that have been
implemented in a number of States. Compliance with PFM regulations have also continued to
improve with most States adopting PFM Laws, albeit slowly.
Lagos, Akwa Ibom, Rivers, Delta and Bayelsa led the States in budget allocations with N445.18
billion, N415.9 billion, N361.9 billion and N214.59 billion respectively. These five (5) States made
up 38.17 per cent of total budget provisions for the 36 States in 2011. Yobe, Anambra, Kwara,
Zamfara and Taraba represented States with the least budgets comprising N69.22 billion, N66.9
billion, N60.61 billion, N59 billion and N58.7 billion respectively.
Budget realism still remains a major challenge for these States from minimal citizens
participation to poor legislative scrutiny, challenges in understanding technicalities in budgets and
financial and time constraints. Although States have begun to engage the civil society in stakeholder
workshops and town hall meetings as well as disseminate budget information using websites and
other publications, the ability of non-state actors to influence economic, fiscal and expenditure
policies remains inadequate.
Furthermore, the absence of a standard provision for budget formulation and presentation has
hampered any form of external scrutiny. The legislatures have remained the primary evaluators
even as dedicated times remain too short to examine the recommended budget effectively to make
meaningful changes. Some challenges mitigating budget performances across States include the
following:
i.
Recent developments at the Sub-national level however, show some progress as the legislative arm
of States have begun to show greater interest in fiscal issues, with the need to promote fiscal
independence as they continue to align themselves with the executive in reaching PFM targets.
3.2
Results indicate that most States are steadily improving their performances in revenue generation.
Total revenues for the 36 States was N3.05 trillion in 2011, comprising net FAAC allocations of N2,
563.72 billion and IGR of N483.47 billion (15.87 per cent of total revenues). This showed that in
2011, Nigerias sub-national governments earned about N254 billion monthly or N8.4 billion daily
in revenues. This positive trend has been primarily due to a stronger political will and a more
effective administration reform with emphasis on legislation, automation of work processes, human
resource capacity investment and the entrenchment of IT infrastructure across State revenue
frameworks.
However, while some States including Lagos, Rivers, Akwa Ibom, Delta and Bayelsa have continued
to maintain the largest share of the total revenue for States (around 41 per cent in 2011), others
including Zamfara, Gombe, Ekiti, Nasarawa and Ebonyi have continued to lag behind. Poor public
perception has remained a major challenge to the process as well as human capacity limitations,
and the absence of a comprehensive adoption of PFM laws to ensure accountability and
transparency measures.
States are encouraged to adopt modern tax systems that are efficient, to minimize market
distortions while ensuring a service-oriented relationship with tax payers (a more effective tool for
reaching MSMEs). Establishing a lean but effective internal audit system also presents a desirable
avenue for PFM reforms10 (AfDB, 2012). This goes beyond compliance and performance auditing to
the promotion of accountability and transparency in government,
3.3
The total public debt for the 36 States in 2011 was recorded as N1.48 trillion, comprising domestic
debts reaching N1.15 trillion (77 per cent) and external debts of N334 billion (23 per cent).
Findings showed that the percentage of flow to non-flow debts was 55.21:44.79 per cent for the
period under review, showing that a larger percent of domestic debts were incurred from
commercial bank loans and State bonds; while contractors arrears, pension and gratuity arrears,
AfDB (2012) Africa Governance Outlook. Public Financial Governance Reforms: The Recent Progress in
Africa
10
27
government-to-government debts, salary arrears and other staff claims and other liabilities made
up 44.79 per cent of total domestic debt for States.
Lagos, Bayelsa and Cross River led States with the highest public debts relative to the total debt for
all States, with percentage ratios as high as 16 per cent, 11 per cent and 7 per cent respectively. On
the other hand, Borno, Jigawa and Yobe States maintained the least total public debts, each
constituting less than 1 per cent of total debt for States. Findings also showed that Borno, Jigawa,
Oyo, Yobe, Osun, Katsina, Kano, Kebbi, Sokoto, and Nasarawa States all had unhealthy dependence
on external sources of public finance, with external debt components all above 50 per cent of their
total debts.
These results pose serious challenges for domestic resource mobilization, income distribution and
capital flight.
3.4
Solvency ratio findings for public debt and total revenues showed that no State was in breach of the
World Bank CPIA 250 per cent threshold, although Cross River had reached a risk level of 199.21
per cent. On the other hand, solvency ratios comparing domestic debt to internally generated
revenue showed that most states had reached high risk levels compared to the DRI threshold of 92
per cent to 167 per cent. Only 8 States including Oyo, Katsina, Kano, Anambra, Yobe, Jigawa, Borno
and Lagos scored ratios below 92 per cent in 2011. Cross River, Bayelsa, Bauchi, Ebonyi, Ekiti, Ondo
and Kogi led States with very high solvency ratios for domestic debt and IGR, which indicated an
over-reliance on federal allocations.
A further liquidity ratio analysis on average FAAC allocations and debt service deductions showed
that although no State reached the applicable 40 per cent threshold, Edo, Abia, Gombe and Ekiti
States11 where at high risk levels that required effective precautionary measures.
The final indicator analysis which measured fiscal service sustainability for States showed that in
2011, Cross River and Ebonyi were in deficit of N53.6 billion and N8.9 billion respectively, in terms
of how far their total revenues could finance their public debt for the fiscal year; while Akwa Ibom,
Delta and Rivers States had the highest surpluses amongst other States for the given year.
The greater challenge is that overall debt imbalances and unsustainable government borrowing
ultimately weigh down the fiscal equilibrium of sub-National economies. Intensive infrastructure
11
28
programmes financed by loans which generate large service burdens deprive the assets of
maintenance spending hence, jeopardizing the sustainability of such public utilities.
SECTION 4: RECOMMENDATIONS
Besides a strong political will and commitment which has led a number of States to implement
meaningful PFM reforms, this section provides a number of other key drivers that shape PFM
performances in Nigerias sub-National governments. The following are the main recommendations
for enhancing public financial management:
i.
Budget realism remains a key challenge for most sub-National governments in Nigeria due
to poor budget formulation and implementation mechanisms. Addressing this issue
requires establishing clear policy objectives, setting realistic timelines, and ensuring the
availability of resources. Revenue and expenditure (as well as borrowing constraints)
should also be considered together to determine annual budget targets. Commendably, a
number of States now develop their annual budgets within a multiyear perspective, through
the preparation of medium-term revenue and expenditure frameworks; not least to gain a
full appreciation of the future spending implications of present policy decisions.
ii.
Sub-national
governments
should commit
to
comprehensively
establishing
and
implementing relevant legal and institutional frameworks for public financial management
including the Fiscal Responsibility Law (FRL), Public Debt Management Law (PDML),
Public Procurement Law (PPL), Freedom of Information Bill (FIB), debt management offices
or departments, and budget monitoring offices. Although some States are already following
a comprehensive legal framework in expenditure management and revenue generation, the
legislative oversight capacity is very limited, with the absence of technical support staff for
parliamentary committees.
iii.
29
iv.
In view of data challenges, States should commit to compile and publish accurate and timely
data on all sub-national PFM data, to aid the analysis of trends and indicators as part of the
States PFM strategy; establishing a PFM database based on strong capacities and
competencies. This database which should be adapted to national circumstances, would
guide budgetary processes as it sets the term for fiscal rules.
v.
States could undertake to work with international standards (after agreeing thresholds for
assessing sustainability indicators) to define methods for establishing sub-limits for subnational governments, so as to ensure that the sum of national and sub-national
government debt are within national total debt limits.
30
SECTION 5: APPENDICES
Appendix 1: 2011 Budget, Total Revenue and Public Debt for States
STA TES
ABIA
BUDG ET
(N BILLION)
105.106
IG R
FA A C
PUBLIC DEBT
(N MILLION)
DOMESTIC
DEBT
EXTERNA L
DEBT
64,275.16
25.06%
74.94%
29,414.86
82.28%
17.72%
ADAMAWA
70.6
52,349.06
7.12%
92.88%
30,515.33
85.05%
14.95%
AKWA IBOM
419.785
250,194.24
3.66%
96.34%
51,070.86
80.78%
19.22%
ANAMBRA
66.9
62,908.98
19.50%
80.50%
10,234.08
62.57%
37.43%
BAUCHI
111.957
56,150.24
2.29%
97.71%
28,284.90
64.86%
35.14%
BAYELSA
214.59
167,142.88
3.30%
96.70%
167,123.65
97.43%
2.57%
BENUE
71.6
54,193.96
8.46%
91.54%
20,796.31
79.97%
20.03%
BORNO
99.8
60,988.38
3.69%
96.31%
3,714.96
45.35%
54.65%
CROSS RIVER
119
54,013.97
2.79%
97.21%
107,600.43
84.34%
15.66%
DELTA
361.9
237,804.07
10.97%
89.03%
93,257.51
97.41%
2.59%
EBONYI
73.5
37,790.21
7.58%
92.42%
46,695.02
86.18%
13.82%
EDO
163.86
68,861.52
15.52%
84.48%
45,706.35
85.42%
14.58%
EKITI
92.5
42,406.72
4.42%
95.58%
29,057.84
81.45%
18.55%
ENUGU
89.6
49,394.79
6.59%
93.41%
17,922.27
60.75%
39.25%
GOMBE
79.4
47,524.04
8.95%
91.05%
11,616.42
61.73%
38.27%
124.475
65,368.80
17.83%
82.17%
33,297.84
76.34%
23.66%
JIGAWA
77.293
57,028.08
3.97%
96.03%
5,939.33
26.78%
73.22%
KADUNA
136.5
72,708.70
17.69%
82.31%
63,332.05
54.90%
45.10%
IMO
KANO
157.69
96,040.88
18.06%
81.94%
15,234.47
38.51%
61.49%
KATSINA
100
71,621.12
17.76%
82.24%
13,677.40
15.06%
84.94%
KEBBI
91.5
52,899.13
6.57%
93.43%
14,861.04
49.06%
50.94%
KOGI
80
52,062.57
5.83%
94.17%
39,497.45
86.39%
13.61%
KWARA
60.61
56,634.96
23.98%
76.02%
32,147.60
78.56%
21.44%
LAGOS
445.18
316,475.04
64.76%
35.24%
234,608.63
67.15%
32.85%
NASAWARA
81.506
40,273.82
5.15%
94.85%
11,143.79
47.88%
52.12%
129
54,317.66
3.32%
96.68%
21,385.44
79.38%
20.62%
OGUN
98
56,893.69
13.92%
86.08%
44,963.89
67.04%
32.96%
ONDO
143
77,383.57
5.15%
94.85%
56,208.33
86.05%
13.95%
OSUN
88.143
49,809.53
6.78%
93.22%
15,099.06
36.19%
63.81%
147
87,689.82
35.10%
64.90%
17,044.37
28.21%
71.79%
NIGER
OYO
PLATEAU
86.562
53,237.99
10.11%
89.89%
24,110.12
86.72%
13.28%
RIVERS
415.9
275,427.09
11.10%
88.90%
89,284.19
94.06%
5.94%
SOKOTO
76.78
55,196.82
6.25%
93.75%
11,184.75
43.83%
56.17%
58.7
50,666.69
3.99%
96.01%
21,170.78
84.90%
15.10%
69.22
51,551.89
6.58%
93.42%
6,968.79
29.97%
70.03%
TARABA
YOBE
ZAMFARA
TOTA L
59
4,866.16
47,910.39
2.91%
97.09%
17,091.40
75.88%
24.12%
3,047,196.43
15.87%
84.13%
1,481,261.51
77.48%
22.52%
31
Appendix 2: Debt Sustainability Ratios and Fiscal Service Sustainability for States (2011)
S TA TES
S OL V ENC Y
R A TIO I (%)
S OL V ENC Y R A TIO
II (%)
L IQUID ITY
R A TIO (%)
FIS C A L
S US TA INA BIL ITY
[N M IL L ION]
ABIA
45.76
150.27
28.8
34,860.30
ADAMAWA
58.29
696.33
14.18
21,833.73
AKWA IBOM
20.41
450.01
6.31
199,123.38
ANAMBRA
16.27
52.20
6.84
52,674.90
BAUCHI
50.37
1,428.84
12.95
27,865.34
BAYELSA
99.99
2,955.04
19.59
19.23
BENUE
38.37
362.65
15.11
33,397.65
BORNO
6.09
74.93
12.68
57,273.42
199.21
6,023.91
20.5
(53,586.46)
DELTA
39.22
348.23
20.01
144,546.56
EBONYI
CROSS RIVER
123.56
1,404.88
24.42
(8,904.81)
EDO
66.37
365.36
35.76
23,155.17
EKITI
68.52
1,264.04
25.58
13,348.88
ENUGU
36.28
334.59
8.93
31,472.52
GOMBE
24.44
168.49
27.37
35,907.62
IMO
50.94
218.09
24.44
32,070.96
JIGAWA
10.41
70.32
8.53
51,088.75
KADUNA
87.1
270.33
9.41
9,376.65
15.86
33.82
13.71
80,806.41
19.1
16.20
11.59
57,943.72
KEBBI
28.09
209.94
10.72
38,038.09
KOGI
75.87
1,124.69
8.11
12,565.12
KWARA
56.76
185.98
0.57
24,487.36
LAGOS
74.13
76.86
6.36
81,866.41
NASAWARA
27.67
257.11
16.66
29,130.03
NIGER
39.37
942.22
9.27
32,932.22
OGUN
79.03
380.72
1.87
11,929.80
ONDO
72.64
1,213.90
2.74
21,175.24
OSUN
30.31
161.80
1.45
34,710.47
OYO
19.44
15.62
4.64
70,645.45
PLATEAU
45.29
388.30
3.74
29,127.87
RIVERS
32.42
274.63
7.29
186,142.90
SOKOTO
20.26
142.01
2.39
44,012.07
TARABA
41.78
888.80
0.5
29,495.91
YOBE
13.52
61.55
5.69
44,583.10
ZAMFARA
35.67
930.43
20.38
30,818.99
48.61
237.39
12.27
1,565,934.92
KANO
KATSINA
TOTA L
Source: Authors calculations based on 2012 Budget of States, JTB, FMF & DMO data
32
ABIA
3.25
11.2
ADAMAWA
3.67
33.8
AKWA IBOM
4.61
18.4
ANAMBRA
4.80
12
BAUCHI
5.50
41.4
BAYELSA
1.97
23.9
BENUE
4.93
14.2
BORNO
4.93
29.1
CROSS RIVER
3.34
18.2
DELTA
4.81
27.2
EBONYI
2.50
23.1
EDO
3.69
35.2
EKITI
2.79
12.1
ENUGU
3.79
25.2
GOMBE
2.77
38.7
IMO
4.60
26.1
JIGAWA
5.03
35.9
KADUNA
7.09
30.3
11.06
21.3
KATSINA
6.73
28.1
KEBBI
3.79
25.3
KOGI
3.84
14.4
KWARA
2.74
7.1
LAGOS
10.67
8.3
NASAWARA
2.17
36.5
NIGER
4.67
39.4
OGUN
4.41
22.9
ONDO
4.01
12.5
OSUN
4.00
OYO
6.60
8.9
PLATEAU
3.66
25.3
RIVERS
6.14
25.5
SOKOTO
4.29
17.9
TARABA
2.65
12.7
YOBE
2.76
35.6
ZAMFARA
3.84
42.6
KANO
TOTA L
162.10
23.43
33