Data from BudgIT has shown that for every ₦100 shared to the Osun State government as revenue allocation from the federation account, ₦91 is deducted to service debt. The development, according to analysts, indicates how the state’s fiscal crisis has moved from bad to worse.
BudgIT said that of the ₦6.44 billion Osun received as revenue from FAAC in January through March, ₦5.87 billion of the amount went to servicing its debt. The development is coming to fore even as the state has been grappling with years of backlogs of unpaid salaries owing to the failure of the government to judiciously harness the revenue potential of huge human and capital resources.
The state may even be on the brink of seeking life support, analysts have said. Osun also has the highest deduction done ever on any of the 36 states as a percentage of federal allocations, showing how terrible the fiscal situation of the state is at present.
A 91% federal allocation deducted in servicing the states debt profile would leave the state with only about 9% of the revenue to be used as expenditure on health, education and other financial obligations for its over 4.6 million people, according to BusinessDay’s estimate.
Osun is an extreme expression of the fact that most states of the country are technically insolvent and cannot meet their obligations. This burden on the state’s purse could have been a bit lighter but for the government’s inability to look inward and grow its stream of internally generated revenues.
As at March 2020, Osun had an outstanding domestic debt of ₦137.3 billion. Asides Lagos and some oil-producing states (Akwa Ibom, Bayelsa, Delta, Imo and Rivers), only a handful of other states (such as Ogun) have as much outstanding debt. A look at 2019 full-year internally generated revenues shows that it only generated ₦17.9 billion (1.34% of total and 19th highest nationally).
It means that Osun State’s IGR only covers 7% of the domestic debt owed (one of the worst ratios in the country). In light of the recent economic crisis resulting from the coronavirus induced lockdown, we can expect that all states will experience a significant decline in IGR, an indication that 2020 will be a difficult year for states like Osun to fund social programmes.
Unfortunately, the Federal Government is also in dire straits and is unable to help them with bailouts this time. This explains the current desperate drive for extortionary revenue generation from many states and the Federal Government. Of course, such measures will be counterproductive as they will cause businesses to shrink back. Governments need to ruthlessly cut their costs and take a view to enable businesses as opposed to extorting them.