We attended yesterday the London launch by BudgIT of the 2017 edition of its State of States report. The headline is the fiscal sustainability index in which, based upon 2016 data, the five leading states in descending order are: Rivers, Lagos, Ogun, Kano and Akwa Ibom. The league tables are eagerly awaited by the state governors, as the World Bank Group’s Ease of Doing Business indices are closely monitored by the FGN. Protests at poorly-received index placings by the injured parties are common.
The ratios for recurrent expenditure/total revenue, recurrent expenditure/internally generated revenue (IGR) + 13% derivation + VAT, and total debt stock/recurrent revenue have weightings of 50%, 35% and 15% respectively in the compilation of the index.
The Lagos State rating is weakened by its debt stock of N735bn, which is more than four times that of any other state. We would suggest a refinement of the methodology to distinguish between naira and fx debt. In the case of Lagos, the fx debt accounts for N423bn of the total. This is all provided at concessionary terms by lenders such as the World Bank. Further, it is necessarily guaranteed by the FGN and is subject to more rigorous analysis than that of the banks for naira loans.
This is an index of record without a forward-looking element. The report offers useful sections on each state, identifying the sectors with the most potential and projects likely to boost IGR in the years ahead.
It shows the limitations of federalism, Nigerian-style. “True federalism”” provides fiscal autonomy. In this case the slide of the oil price in mid-2014 highlighted the dependence of states on the monthly payout, leading in most states to the emergence of salary and pension arrears.
The index is the work of an independent research body, and enjoyed the support of the Bill and Melinda Gates Foundation.
Our well-known pedantry obliges us to comment upon data sources. The BudgIT table on page 77 cites the Office of the Accountant General of the Federation, the National Bureau of Statistics and the Debt Management Office as its external sources.
For state government finances, we have generally quoted the older data supplied by the CBN for its longer historical series. In the ideal world, all sources would draw upon audited fiscal statements from the states. It would appear that this is not always possible. At least one state has complained at the figure provided for IGR.