Business
‘States Don’t Executed 40% Capital Expenditure In Budgets’
Fitch, a credit ratings company, has revealed that state governments in Nigeria do not execute 40 per cent of the Capital Expenditure (CAPEX) in their various annual budgets.
In its latest Nigerian States Framework Report posted on the website, the global ratings firm, highlighted how debt servicing affects state governments’ ability to execute CAPEX.
According to the latest credit ratings report on Nigeria, the country’s Long-Term Foreign-Currency Issuer Default Rating was affirmed at ‘B-‘ with a positive outlook.
It also projected that non-performing loans of Nigerian banks will increase in 2024 on the back of high interest rates and inflation in the country.
The latest analysis framework report, also revealed that all Nigerian states rated by Fitch are on Positive Outlook, reflecting that of the sovereign (B-/Positive) and the Federal Government of Nigeria’s policies that affect states’ operating revenue, debt stock, and debt service.
“The free-floating naira exchange rate has consistently increased external debt service, eroding the share of FAAC available for autonomous spending, as external debt is serviced through direct deductions from transfers.
“Most Nigerian states rely on subsidised facilities from the federal government to finance their investments. Despite significant capital expenditure needs, states struggle to fully utilise budgeted capex due to funding and implementation constraints, with an average of only about 60 per cent of budgeted capex executed”, it stated.
The report added that Nigerian states face several challenges as Internally generated revenue growth remains subdued due to socioeconomic constraints and inefficiencies in tax collection.
It continued that Most states depend on FAAC transfers, with Lagos being an exception due to its higher IGR capabilities. Rising current spending, driven by high inflation and recent increases in the minimum wage, further pressures state finances.
“Fitch views the institutional framework for the Local and Regional government sector as evolving due to limited own-revenue-generation capacity, evolving debt and liquidity-management regulations and practices amid the devolution of a wide set of responsibilities to the states.
“States have to provide key public services, such as healthcare and education, creating vertical fiscal imbalances that can result in structural funding gaps, in turn leading to higher debt or a propensity to offload risks off-balance sheet”, it stated.
In October, a new report by civic-tech organisation, BudgIT, revealed that 32 out of Nigeria’s 36 states relied on allocations from the Federation Account Allocation Committee for at least 55 per cent of their total revenue in 2023.
The report highlighted the over-dependence of many states on federal transfers, which makes them vulnerable to external shocks particularly those linked to oil revenue and federal disbursements.
Corlins Walter