BudgIT: Rivers, Lagos, Anambra top states’ fiscal performance ranking

BudgIT, a civic-tech organisation for transparency and accountability, has launched the 2021 edition of its annual States of States report.

The report, titled, “Fiscal Options for Building Back Better,” is BudgIT’s signature analysis that provides citizens, CSOs, stakeholders and policymakers with robust insights on ways to implement financial and institutional reforms that will improve states’ fiscal performance and sustainability levels.

According to BudgIT, Rivers state, once again, topped the overall 2021 fiscal performance ranking, indicating that the fundamentals of this state, compared to others in the country, are more prudently managed. 

In the overall ranking, two states — Ebonyi and Kebbi — made it as new entrants to the top 5 category.

The civic-tech organisation said the report was driven by growth in both states’ IGR as recorded by the NBS.

“For this year’s report, we examined states’ fiscal health using four metrics namely; the ability of states to meet their operating expenses with IGR and VAT, states’ ability to cover their operating expenses and loan repayment with their total revenue, how much fiscal room states have to borrow more, and the degree to which each state prioritises capital expenditure with respect to their operating expenses,” said Gabriel Okeowo, CEO, BudgIT.

“Ebonyi state grew its IGR by 82.3 percent from N7.5 billion in 2019 to N13.6 billion in 2020, while Kebbi state grew its revenue by 87.02 percent from N7.4 billion in 2019 to N13.8 billion in 2020. Meanwhile, Ogun state (now 19th) and Kano state (now 22nd), dropped out of the top 5 category due to a sharp decline in their IGR in 2020.”

Abel Akeni, BudgIT’s research & policy advisory lead, noted that only three (3) states in the country could meet their operating expenses obligations with a combination of their IGR and value-added tax (VAT) as measured in our ‘Index A’ ranking; these states are Lagos, Rivers, and Anambra.

The report further stated that the total debt burden of the 36 states increased by N472.63bn (or 8.78 percent) from N5.39 trillion in 2019 to N5.86 trillion in 2020. This, it attributed to exchange rate volatility which saw the value of the naira jump from N305.9/$1 in 2019 to N380/$1 as at December 31st 2020.

“States with the highest foreign debt were significantly hit due to negative exposure to exchange rate volatility. These states include Lagos, Kaduna, Edo, Cross River and Bauchi. Furthermore, five (5) states accounted for more than half (that is 63.63% or N300.7bn) of the net year-on-year subnational debt increase of N472.63bn for all the states between 2019 and 2020: the states are Lagos, Kaduna, Anambra, Benue and Zamfara,” said Abel Akeni.

The report advised states to block financial leakages that could further drain the little available revenue or future revenue.

“Without a doubt, economic shocks from the COVID-19 pandemic took a toll on states’ IGR and their share of federally collected revenue in 2020; thus, the need to explore options for building back the subnational economies cannot be overstressed,” it added.

“A critical first step for states would be to rapidly block financial leakages that could further drain the little available revenue or future revenue. From the Annual Performance Assessment (APA) results of states under the State Fiscal Transparency, Accountability And Sustainability (SFTAS) program, released in Q2 2021, only 7 states in Nigeria had functioning Treasury Single Accounts (TSA), an otherwise critical fiscal strategy that gives states more control over their revenues and could help states reduce leakages.

“The results were better for states that had introduced reforms to block leakages, due to the existence of “ghost workers” and other forms of payroll fraud. About 24 states and 27 states, respectively, had introduced “Biometric use in payroll management” and “Bank verification number use in payroll management.”

Okeowo said procurement processes are one of the biggest areas through which revenue leakages can occur. Hence, he urged states to adopt open contracting principles to minimize inflated contracts and other forms of procurement and procedural fraud.

“Furthermore, to complement efforts in raising revenue and blocking revenue leakages, states also require a rapid build-up of capacity in deploying custom and innovative Public-Private Partnership (PPP) models to deliver on critical infrastructure projects and programs.

“This is especially in key sectors like health, education, housing, and agriculture, given the shrinking fiscal space in which states are operating and will continue to operate in the next few years,” he added.

Laoye Jaiyeola, chief executive officer, Nigerian Economic Summit Group (NESG), said the report is a timely one as it would enable states to restructure their financial strategy to have the right resources to invest in their people.

He said that states need to make suitable investment policies in order to attract investors and to also review their tax collection approach to ensure accountability and prevent wastage.