The Chairman of the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) Elias Mbam on Wednesday said that many states in Nigeria are insolvent saying the external debts of the thirty six states stand at $2.165 billion.
Mr Mbam said this when he appeared before the Senate joint committee on national planning, finance, appropriation and states and local government to investigate the looming bankruptcy in states and need for fiscal evaluation.
He told the committee that records available to the commission from the Debt Management Office (DMO) show that as December, 2011 the total external debts stock of all the states stood at $2.165 billion while that of the federal government stood at $3.501 billion.
“The Commission has observed with concern the huge domestic debt profile of the states as most of them are highly indebted to various local banks in short term borrowing and are substantially exposed to the Capital Market,” he said.
“Most of these loans are tied to Irrevocable Standing Payment Orders (ISPOs), issued to the Accountant-General of the Federation to deduct directly from their monthly allocations due to the states, thereby preventing them from meeting their minimum basic obligations to the citizens,” Mr Mbam told the Senate committee.
From the figure before the joint committee, Lagos state has the highest external debt profile of $491.847 million; Kaduna, $182.261 million; Cross river, $107.532 million; Ogun, $94.573 million; Oyo, $78.085 million and Katsina, $74.138 million.
Also, Borno state had the least external debt of $12.957 million; Delta, $15.404 million; Taraba, $20.396 million; and Akwa Ibom, $62.648 million.
The RMAFC Chairman said though “deficit budgeting is tolerable within an acceptable limit, its endless application has endangered and forced the state governments to resort to excessive borrowing to meet their basic expenditure demands even where they have no capacity to pay back.
“The regular sharing of Excess Crude Account is an indication of the desperate financial position of the state governments to get funds to meet costs of governance. For instance, $1.5billion was shared in three equal instalments from the Excess Crude Account in 2011 alone of which the states received $400.800 million.
“The National/State Assemblies should consider appropriate legislations limiting the total exposure of states to external and domestic borrowing to not more than 20 per cent of their monthly allocations from the Federation account. In addition, such borrowing should be for economic projects. Furthermore, there should be strict compliance to the relevant provisions of the Borrowing by Public Bodies Act (CAP.B10, LFN, 2004).”
He said that the commission was in the process of reviewing the revenue formula of the federation but cautioned against playing politics with the issue.
