Checking Arbitrary States’ Loans | Independent Newspapers Limited
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Checking Arbitrary States’ Loans

Posted: Aug 10, 2015 at 12:00 am   /   by   /   comments (0)

editorial letter

The increasing number of State governments in recent times approaching both local and international financial bodies for loans speaks volume and has a worrisome proclivity considering that many of these loans do not seem to have clear purposes. Recently, four states of the South-South, namely Bayelsa, Delta, Edo and Rivers, reportedly benefited from a $200 million interest free loan from the World Bank to fund various projects in their respective states. Not too long ago, Lagos state also accessed a $200 million loan from World Bank to support a range of reforms relating to fiscal sustainability, budget planning, budget execution and the investment climate in the state.

Moreover, apart from regular loans, many state governments also have the penchant of approaching the bond market to raise funds for their operation. Available information reveals that Lagos and Delta states, for example, top the list of borrowers from the bond market with a debt profile of about N167.5 billion and N50 billion respectively. Some states, such as Bauchi and Gombe, are reportedly in the process of going to the market anytime soon. This trend has obviously raised the already huge debt profile of these states, most of which are struggling to offset their foreign and domestic debts. Only recently, a report published by the Debt Management Office (DMO)  confirmed that the 36 states and the Federal Capital Territory (FCT) have accumulated foreign debts totaling $3.01 billion as of June 2014. Most state governments have also taken loans and overdrafts from banks, merely to pay salaries, as they continue to complain of dwindling allocations from the monthly Federation Account, following declining oil prices in the international market. These debts have continued to increase even as banks deduct huge sums from their accounts monthly to service the loans.

The truth is that it is not bad for government to take loans when necessary, but most times, it seems the privilege is being abused. We wonder why some state governors would want to take loans just few weeks to the expiration of their tenure only to pile up the debt burden on their successors. Besides, most of these loans had been meant for intangible and white elephant projects. It is even sad that as these loans have continued to be taken for developmental specific purposes, poverty reduction and job creation seem to remain elusive. Health and education, including other critical sectors, have remained a mess. This is the irony of the purported intentions for these loans.

The question is, how long would state governments continue with this unwholesome practice of borrowing to fund their operations? This newspaper believes that the fundamental problem is that states have become overly complacent and lazy due to their overdependence on the monthly federal allocation. Besides they find it handier to raise funds through bonds and loans rather than creatively identifying and developing Internally Generated Revenue (IGR) sources. Perhaps it is time state governments began to develop creative and contingent ways to raise fund to compliment what they get from the centre for their operations. Loans should be considered as a matter of last resort and for only capital projects that are genuinely people oriented.

The state Houses of Assembly must provide a regulatory framework that would discourage their respective states from taking needless loans with a view of entrenching a culture of accountability, transparency and integrity.