Osun, others pay over 30% to FAAC for debt servicing in 9 months

by | November 3, 2017 2:12 pm



Osun, Cross River and Ogun state have paid more than 30 percent of their cumulative allocations from the federation account for servicing accumulated debts over the years.
This has been shown in BusinessDay analysis of the monthly deductions by FAAC relative to the total gross revenue shared to the 36 states between January and September 2017.
 The monthly deductions by FAAC from the states gross revenues are of interest to analysts because most of the states generate less than 30 percent of their revenue through IGR as a result of which a number of them are unable to meet basic obligations such as the payment of salaries.
 
Between January and September 2017, debt servicing by the 36 states gulped N268.5 billion out of the N1.51 trillion revenue they received from FAAC. While this means that collectively, only 18 percent of their revenue was spent servicing debt, thirteen states exceeded the national average with Osun, Cross River and Ogun states topmost on the list.
 
During the reference period, N21.74 billion was deducted on behalf of Osun State which represented 76 percent of the N28.5 billion due to it from FAAC. What this means is that, out of every N100 due to Osun State from FAAC, N76 was deducted for the repayment of debt while only N24 eventually got to its coffers. Cross River had N13.92 billion or 46 percent of the N30.33 billion it received from FAAC deducted for debt repayment while N10.9 billion was deducted on behalf of Ogun State for debt servicing and that amounted to 37 percent of the total revenue due to it from FAAC in the first nine months of 2017.
 
For Ekiti State, 34 percent or N9.17 billion was deducted for debt servicing out of N27.3 billion it got from FAAC during the period. Plateau and Zamfara states had 33 percent and 31 percent of the N31.5 billion and N30.2 billion they received from FAAC set aside for debt servicing. Other states and the portions of the monthly revenues deducted by FAAC for debt servicing are Lagos, 28 percent; Edo,27 percent; Delta, 23 percent and Bauchi, Imo and Ondo states, 22 percent each and Gombe, 21 percent.
 
For Kaduna, Katsina, Kano, Kebbi and Akwa Ibom states, monthly deductions amounted to 9 percent each while 8 percent of the gross allocations to each of Borno, Nasarawa and Sokoto states was deducted for debt servicing. Ebonyi was five percent while it was just four percent for Anambra, Yobe and Jigawa states. 
 
Kayode Tinuoye, head of research, United Capital Plc attributed this phenomenon to the inability of states to restructure their debts. “It shows that most of them have not been proactive in restructuring their debts and this will affect their fiscal sustainability especially for those with low IGR”, Tinuoye said.
 
“Generally speaking, it is a huge challenge for them and that was why the Federal Ministry of Finance said new bond issuances by states would not be allowed”, he added.
 
Monthly, FAAC deducts a portion of states’ gross monthly allocations  for the repayment of external debt, contractual obligations otherwise known as the irrevocable standing payment order (ISPO), and for items captured as “other deductions” which relate to the loans obtained for the execution of the national water rehabilitation projects, national agricultural technology support program, payment for fertilisers, state water supply project, state agricultural project and the national Fadama project.
 
Of the N268.5 billion paid for debt servicing between January and September 2017, repayment of loans grouped as “other deductions” got N155.2 billion or 58 percent; ISPO, N87.6 billion or 33 percent and external debt, N26.7 billion or 10 percent.
 
As at June 2017, the 36 states and FCT Abuja have $3.94 billion external loans obligations and N2.93 trillion as domestic loans. And as at September 2017, twenty-eight states generated less than 30 percent of the total revenue through IGR. Based on our research, only Lagos and Ogun states have the capacity to generate 73 percent and 63 percent of their total revenues internally through IGR.
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