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Fiscal responsibility: Kaduna State's debt burden and unrealistic budgeting


By YUSUF ISHAKU GOJE

The budget is said to be the second most important document outside the constitution, without which even the constitution cannot fully function. It enables governments to turn campaign promises articulated as policies into concrete public services that seek to improve the overall living standard of the people. That is why it remains the most critical socio-economic policy tool that outlines the government's priorities in financial terms.

The extent to which the government's proposed spending sticks to what it has projected as realistic revenue makes a budget credible. Therefore, it also becomes a measurement of government's sincerity and capacity to deliver on campaign promises. More importantly, the credibility of any budget depends on its realism, as you cannot spend what you cannot get. That means for a budget to be realistic it has to be substantially achievable.

However, politicians are always under pressure to spend more, most times overshooting projections made in the Medium Term Expenditure Framework (MTEF). They do this by including revenue sources that they know are not realizable by the end of the fiscal year. Ideally, the MTEF ensures that the government's expenditure does not exceed the total sum of projected total revenue.

Kaduna state has since 2014 embraced the culture of medium term planning through the MTEF. This has improved the quality of the annual budget as a result of the technical and evidence-based approach therein. Consequently, it has also thrown up the debate on budget realism. The trend since 2016 to 2020, have shown that the government had not adhered to the MTEF recommended budget size. This is worrisome.

The actual performance within the same period, the exception being 2019 as a result of a supplementary budget passed, has been closer to the MTEF recommendations than to the final approved budgets. For instance, in 2016 the MTEF recommended N94 billion but was inflated to N172 billion in the approved budget; while the actual performance was N80 billion. Similarly, in 2020 the actual performance was N190 billion, even though slightly higher, is closer to the MTEF recommendation of N178 billion, than the approved budget of N259 billion.

Commendably, the external debt service versus total revenue, total debt service versus total revenue, and domestic debt service versus IGR are all below the threshold. However, the fact that we all must come to terms with is that the debt profile of the state is high. This is evident as the total public debt for Kaduna state was N284,398,612,174 as at 31st December, 2020. This is broken down into domestic debt, which is N68,754,361,084; while external debt stands at N215,644,251,090.

More importantly, our focus should be on the ratio between total domestic debt versus total recurrent revenue which is 64%, above the 50% threshold; total domestic debt versus IGR is 156%, above the 150% threshold; total external debt versus total revenue is 201%, above the 50% threshold; total public debt versus total revenue is 265%, above the 100% threshold. This should give us sleepless nights particularly because the 2022-2024 MTEF also shows that in 2021 about N71,687,054,660 and in 2020 about N30,475,012,034 are earmarked as loans.

Even though we are still within the debt service threshold, which might look convenient in the short term, the worry is our capacity to sustain this in the future. This is if we consider the large chunk of the debt, made up of the World Bank P4R loan, with a moratorium of ten years before we start paying back. Granted that the state government's investment and revenue drive should be commended, a closer look leaves one with some concern.

The questions to be answered about our repayment capacity. Would insecurity allow for inflow of massive investments and boosting of agriculture's contribution to the Gross Domestic Product (GDP)? How many micro and small businesses is the government supporting, considering that the Urban Renewal projects' (Market Component) has displaced many of them? Is the upward IGR spike sustainable considering that the Federal government refund and and other recoveries will end one day? What happens if that ends? Also, is the statutory 10% and revenue collected on behalf of the local government part of what is being declared? What happens if the local governments are granted autonomy in the future?

The reality is that there is no better option than for the government to strictly adhere to realistic budgeting now. Thankfully, at the recent MTEF Stakeholder's Engagement, the Planning & Budget Commission has made a commitment to adhere to the recommended 2022-2024 MTEF budget size. The total budget size for the year 2022 is put at N197,563,002,078. This is realistic and if it is adhered to it will make the budget more credible with improved prioritization.

Finally, we call on the government to always base its annual budgets on realistic projections of all sources of revenue. This will not only ensure credibility but also close the trust gap with the citizens. It will also ensure that we move closer to addressing our socio-economic challenges as a state.

Goje, is a good governance advocate and writes from Kaduna-Nigeria

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