Another Look at Kaduna’s Rising Debt Profile

By YUSUF ISHAKU GOJE

As at 31st December, 2020, the total public debt of Kaduna state stood at N284,398,612,174. The breakdown shows that external debt was N215,644,251,090 – 75.8%, while domestic debt was N68,754,361,084 – 24.2%. A chunk of the debt of the state come under unpaid liabilities, while the remaining is loan. Borrowing in itself is not bad considering that most governments tend to run annual budget deficits, of which loans are used to finance it.

The concern, however, is not that loans are being collected. The question is how well is it utilized and the capacity to service or repay it. Particularly, debt sustainability should be a source of concern to all in order to avert fiscal crisis in the future. A quick look at the Kaduna state debt profile shows that even though we are within the liquidity ratio, what is worrisome is that we have alarmingly gone above all the debt sustainability threshold.

Available data for 2020 showed that our total domestic debt and total recurrent revenue stood at 64.28%, above the 50% threshold. Similarly, our total domestic debt versus Internally Generated Revenue (IGR) is 156.26%, above the set 150% threshold. Furthermore, the total external debt versus total revenue is 201.60%, above the 50% threshold. More worrisome is that our total public debt versus total revenue is 265.87%, far above the 100% threshold.

Consequently, in 2020, our external debt service was N5,389,217,000, while the domestic debt service stood at N2,909,730,000, totaling N8,298,947,000. This year, 2021, the state government in its budget is seeking to borrow another N46,916,696,000. If this is actualized it will take our total debt to N331,315,308,174. This might even go higher if the N30,475,012,034 proposed in the 2022-2024 Medium Term Expenditure Framework (MTEF) is approved and actualized in the 2022 budget.

As stated earlier, borrowing is not the problem, as even advanced democracies like that of United States of America are highly indebted, but utilization in terms of quality and value for money remains the concern. The Urban Renewal projects embarked upon by the state government is evident even to the blind. However, it continues to raise the question of procurement transparency, equity in distribution and prioritization in terms of infrastructure versus human capital development.

From a far, one is moved to commend the government for rapidly improving our IGR, but a closer look elicits questions that demand answers – such as what will happen to our IGR performance when the federal government refund being recovered by the state is exhausted? Does the celebrated rise in IGR also include the statutory 10% and revenue collected on behalf of the 23 local governments? If yes, then what is the actual disaggregated IGR collected, state versus local government? What is the cost benefit analysis in terms of the capacity of the projects to enable our fiscal capability to repay the loans?

With minimal investment in the real sector and also the displacement of many micro, small and medium businesses as a result of the Urban Renewal, how do we intend to sustainably generate the revenue to repay the loan in the medium to long term? This should also be considered side by side with the rising insecurity which has negatively impacted on important sectors like agriculture – which contributes 38% to our GDP and employs 42% of our labor force. Similarly, we cannot push aside our increasing poverty rate at 84.9% as at 2017 and the rising unemployment.

In 2020, Fitch Ratings revised the Outlook on Kaduna State’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to Negative from Stable and affirmed the IDRs at ‘B’. It stated that, “the ability to enlarge the pay-as-you-earn tax base is limited by the low level of income of the population, with over 50% living below the poverty line.” Furthermore, it posited that, “Kaduna’s fast-growing 8.2 million young residents, growing unemployment rate of around 30%, and a traditionally strong primary sector contribute to weak socio-economic standards. The public sector is a key employer in the state, directly and through its planned investment programmes. A large informal economy hinders private sector development, which ultimately affects the IGR tax base.”

Keen watchers are aware that the World Bank’s $350 million loan granted to Kaduna, to support its Development Policy Operations (DPO), is what led to the spike in our debt profile. In 2016, our debt was N123,078,440,000; it increased to N156,500,808,776 in 2017; then to N160,171,590,096 in 2018; it further increased to N248,106,791,344 in 2019; and to the amount stated above for 2020. Despite the initial opposition and blockages encountered, the state government got the loan in 2019, as seen above with the astronomical increase same year.

Describing how the state got the loan, Governor Nasir el-Rufai, while speaking at the send forth for Rachid Ben Massaoud, outgoing country director of the World Bank, stated that when he assumed office in 2015, more than 200 schools in the state were in disrepair. This necessitated the request for the loan, which from the foregoing statement was primarily to fix education in the state. The question then to ask is, how many schools have been repaired so far from the loan and at what quality. For instance, even with the laudable reconstruction of the Primary School at Lokoja road in Rigasa, the pupils are seen sitting outside on the ground taking classes.

This is all the more reason why residents of Kaduna must wake up to hold the government accountable to ensure value for money in the utilization of the loan both at the level of output and outcome. The World Bank loan has a moratorium of 10years to be paid over a 50 years period, with an attractive low financing rate of 0.5 percent interest. This means when we will commence repayment of the loan, the current administration would have almost forgotten they were in power, and the burden of payment would definitely be on the residents.

Thankfully, the government and its allies have made public proclamation that they should be held accountable on the loan utilization. The current Senator representing Kaduna Central, Uba Sani, was quoted to have said, “I can vouch for the Kaduna State Government under Mallam Nasir El Rufai to prudently deploy the loan from the world bank to enhance the welfare and wellbeing of the good people of Kaduna State. In fact, hold me responsible if Governor Nasir El Rufai fails or disappoints on this score.”

This current scenario makes it obligatory on citizens of Kaduna to hold the government accountable on loan utilization and debt sustainability. There is no better time than now!

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