BudgIT: Only 3 States Can Meet Obligations With VAT, IGR

As states continue to battle the Federal Inland Revenue Service (FIRS) on the collection of Value Added Tax (VAT), the latest State of States report released by BudgIT, a civic organisation has shown that only Lagos, Rivers and Anambra states will be able to meet their operating expenses and obligations with a combination of their internally generated revenue (IGR) and VAT collection.

The 2021 State of State report (SoS) released on Tuesday also showed that cumulatively, the 36 states total debt burden increased by N472.63 billion or 8.78 per cent from N5.39 trillion in 2019 to N5.86 trillion in 2020.

This was driven largely by exchange rate volatility which saw the value of the naira jump from N305.9 to the dollar in 2019 to N380 as at December 31st 2020.
Speaking on the report titled “Fiscal Options for Building Back Better”, BudgIT’s chief executive, Gabriel Okonkwo said: “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.

“According to our report, Rivers state, once again, topped the overall 2021 Fiscal Performance Ranking, indicating that the fiscal 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.”

This, he stressed, was driven largely by growth in both states’ IGR as recorded by the NBS. Ebonyi state grew its IGR by 82.3 per cent from N7.5 billion in 2019 to N13.6 billion in 2020, while Kebbi state grew its revenue by 87.02 per cent from N7.4 billion in 2019 to N13.8 billion in 2020.

Meanwhile, Ogun state which is now 19th and Kano state which is now 22nd, dropped out of the top five category due to a sharp decline in their IGR in 2020.

Also speaking on States’ fiscal viability, BudgIT’s Research & Policy Advisory Lead, Abel Akeni, noted that only three 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.

“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 states accounted for more than half, which is 63.63 per cent or N300.7 billion of the net year-on-year subnational debt increase of N472.63 billion for all the states between 2019 and 2020: the states are Lagos, Kaduna, Anambra, Benue and Zamfara,” he pointed out.

Based on each state’s 2020 revenue, five states prioritized investment in infrastructure by spending more on capital expenditure than operating expenses.

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The states are Ebonyi, Rivers, Anambra and Cross River states in the south and Kaduna state in the north. These states appear at the top of the ‘Index D’ ranking. Nineteen states, including eight oil-producing states, saw a year-on-year decline in their capital expenditure, while seventeen states were still able to improve their investment in capital expenditure, from 2019 levels despite fiscal constraints induced by COVID-19.

Without a doubt, economic shocks from the COVID-19 pandemic took a toll on states’ Internally Generated Revenue (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.

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