Why this N35 billion debt is dangerous for Kwara

I have closely followed the debates around Kwara State Government’s N35 Billion borrowing plan. I think this kind of contestation is quite good for our democracy. I only wish that the state government had allowed the space for these debates before embarking on this ruinous quest for loan.

Technically, the government is about to drag all the 3.5 million of us into more debts. Therefore, it is only fair that the people are allowed to have their say, even if government would end up having its way.

There are three major ways government can raise revenue – you beg (grants and allocations), you make (IGR, investments, etc.); or you borrow. Therefore, in principle, there is nothing wrong with borrowing. More so, as some analysts have noted; with a debt to GDP ratio of less than 35%, there is still a lot of room for borrowing by governments both at the State and Federal level. But as they say, GDP does not tell the whole story about an economy and it does not pay debts. It is for this reason that the State government needs to be very careful and change course, before it is too late.

As we speak, Kwara State already has a debt burden of N63,366,236,320.99, placing 25th of 36 States plus FCT. If you add the proposed N35billion, the state will jump ten places to number 15th, while she is stuck on 28th, even in GDP terms, and faced with the real prospect of dwindling revenue on all sides. The State government itself was forced to slash its 2020 budget by 20%.

As COVID-19 continue to throw all assumptions out of the window, the national economy and, in consequence, the state economy face a long dark winter in the months ahead. To therefore hinge the repayment plan for any loan on the state’s FAAC allocation at this precarious time is to write an open invitation to disaster.

An important factor in deciding whether to borrow or not is the ratio of debt servicing to revenue -IGR. As at December 2019, the state government spent N8.1 billion on debit servicing, against an IGR of about N30.6 billion for the same period. This is more than 26%, and 30% for 2020. These figures are upward for the total revenue as well. An additional burden of 55% will certainly amount to an excruciating burden on the state’s lean resources. Kwara state cannot carry this burden.

Lastly, but perhaps most importantly is the issue of debt impact. What the government intends to do with this proposed borrowing is still shrouded in mystery. However, if we go by what we can see, it would be safe to assume that this loan would not be targeted at the state’s economic growth areas. Conventional wisdom is that money should be used to make money. Too many of our people are today mired in abject poverty; only a job-led economy can lift them up.

With all the manoeuvring that we have seen around this proposed loan, I am afraid that government is about to embark on spending spree on popularity projects. While these projects may help the government in its politics; it may end up sending the state into bankruptcy that we may not come out of for many years. We have a recent example with one of our neighbouring states.

We are in the middle of an unprecedented economic recession. Borrowing right now is therefore a totally bad idea. I understand that the government desperately needs money. All governments do. However, there are other options that an honest public hearing would have brought forward and helped the government to clarify. These options may not be as easy as borrowing, but they are certainly more sustainable and less risky.

The governor really needs to change his economic advisers. To increase the state’s debt profile by 55% in one fell swoop based on uncertain revenues is poor thinking; almost close to no thinking at all. The state has enough brilliant people that can help the government think through its revenue challenge. The governor should please look for them.

Abdullahi is former minister of sports and youth development, Federal Republic of Nigeria.