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Why Oyo, 7 other states landed in financial distress —  BudgIT

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Governor Seyi Makinde-governed Oyo state has  been listed among states that landed in financial distress in recent times.

A report by civic advocacy group, BudgIT, said the state and seven other states ran into troubled waters for their inability to generate enough revenue to pay workers, debts, and placing priority on recurrent over capital expenditures.

The respective total revenues for the states were not enough to fund their recurrent expenditure obligations (salaries, overhead, debt service obligations) and meet their respective loan repayment schedules that were due in 2019, the report said.

 

Worst hit

The worst hit of these eight states are Osun, Bauchi , Plateau, Gombe, Adamawa, Ekiti, Kogi and Oyo State.

“This could indicate early signs of distress particularly for states in this category who have very low revenue generation capacities,” BudgIT said.

“Without cutting down certain components of their recurrent expenditure or radically growing their internally generated revenue, the affected states may have to borrow to fund parts of their recurrent expenditure.

Financial distress refers to a state wherein the financial condition of an entity leaves them struggling to pay their bills, especially loan payments due to creditors.

“Severe, prolonged financial distress may eventually lead to bankruptcy,” the report noted.

In its 2020 Revised State of States Reports, which measure epidemic preparedness of states, BudgIT stated that soaring debt burden, imprudent fiscal planning, and nearly a decade of misplaced expenditure priorities have beaten a clear path to fiscal crisis for a majority of Nigeria’s 36 states.

In the 2020 Fiscal Sustainability Index, some states ranked higher than others, but most are still below the sustainability point except for Rivers State which occupies the number one position on the index. It noted that Rivers State is able to meet its recurrent expenditure with only internally generated revenue (IGR) and value added tax (VAT).

“To solve these issues, each state needs to, first and foremost, be a sustainable subnational entity – that is, the state is generating enough revenue to pay its workers, its creditors and still have significant left over to cover capital expenditure interventions for solving development issues,” BudgIT noted.

The report revealed that only five states in the country place priority on capital expenditure over recurrent obligations.

The states are Rivers, Kaduna, Akwa Ibom, Ebonyi and Kebbi.

“However, the quality of the capital expenditure still leaves much to be desired as explored in the narratives for the respective state profiles.

“The remaining 31 states in the country prioritised recurrent expenditure according to their 2019 financial statements.

“Recurrent expenditures are not necessarily a bad thing especially when skewed towards sectors like health and education which have expenses like payment of teachers and doctors salaries that are recurrent in nature.

“However, of the states in this category, 11 had overhead costs that were larger than their capital expenditures. These 11 states are: Adamawa, Bauchi, Bayelsa, Benue, Ekiti, Kano, Kogi, Kwara, Nasarawa, Plateau, Taraba.”

Opposition elements in Oyo have accused Governor Makinde of borrowing to pay salaries and meet sundry obligations in recent time. The governor is said to have borrowed up to N150bn in two years.

But the government has in turn attributed the development to shrinking oil revenue and the state’s financial status.

 

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