On the Kaduna debt matter

First of all, it is absolutely okay to speak of the challenges facing the government especially in town hall meetings in the spirit of transparency and accountability. Secondly, matters regarding the debt profile of Kaduna state and attendant debt sustainability issues are not new. Even the previous administration had stated what a challenge it is in documents like the State Development Plan 2021 – 2025. It was stated in that document that:

“The State Government has affirmed its commitment to timely repayment of domestic and foreign debts……The current debt position as at 31st December 2019, including Solvency and Liquidity Ratios…..shows that Kaduna State Government has surpassed several solvency ratios, albeit the increase in IGR in 2020 will have a significant positive impact. KDSG should look to diversify its debt portfolio around domestic and foreign creditors, as noted above.

“The State, while clearing debt, will be transparent and put certain criteria into consideration. These include social impact, age of the debt, cost, risk, currency, creditor, and value. Depending on the nature of the arrears, payment will be prioritized in a way that allows contractors to be paid first, followed by salaries, pension and gratuity and judgment debt, in that order.

“To ensure debt sustainability, further borrowing should be guided by the ratios laid out in the fiscal policy statement discussed earlier on in this chapter”.

The document advised that: “To protect future generations and ensure inter-temporal efficiency, KDSG will aim not to exceed the following Debt Liquidity and Solvency Ratios within the implementation period of the plan:

  • Debt Stock to GDP Ratio of 25 per cent.
  • ⁠Debt Servicing to Recurrent Revenue Ratio of 25 per cent.
  • ⁠Domestic-Foreign Debt Ratio within the range of 40-60 per cent.

The Kaduna State Government will establish a sinking fund to repay the principal on any interest only debts”.

Now, this document and many others were without any ambiguity while speaking on the matter because they were conceived based on the idea that Malam el-Rufai, the immediate-past governor of Kaduna state had established a stable political coalition in the state that will assure a smooth transition characterised by “consolidation and continuity” for continued structural transformation and not by the crisis management that usually defines periods of transition.

In fact, the former governor in his farewell speech mentioned that: “As of the last financial year, Kaduna State has the following liabilities; Domestic debt of N64.54bn, Other Contingent Liabilities of N16.06bn and Foreign debts of US $577.32m

“We have spent N818.9bn as capital expenditure between 2015 and 2022 in the prosecution of our first and second State Development Plans, attracting nearly US $5bn in foreign and domestic investments that created jobs, improved our tax receipts and laid a solid foundation for the future”.

And while matters surrounding the debt profile might prove challenging, the expectation was that the Governor Uba Sani⁩ administration would own it up and work towards managing the challenge as a matter of continuity. More so because he was instrumental in securing a huge section of the loans.

It is based on this premise that I even reminded Governor Uba Sani during the campaign period in my article titled “Uba Sani, global crises and the challenge of sustaining the El-Rufa’i standard” that:

“…..as we rally around Uba Sani as our most preferred candidate, it is imperative to vividly paint the challenge of living up to the standards that have been set by El-Rufa’i. Even while Uba Sani had copiously displayed transformative, progressive and visionary tendencies in his brief but extremely impactful legislative sojourn, we consider it highly essential to base our trust for him on the condition of consolidation, continuity and improvement upon El-Rufai’s performance in office. And It is based on the forgoing that I feel the need to remind Senator Uba Sani of some of the highly probable realities that might characterise his administration, not because I feel he is not aware (in fact, I believe he is very much aware and prepared), but because of their tremendous importance as determiners for his success or otherwise.

The world, especially economies, are battling with the impacts of the macroeconomic and fiscal shocks being torrented by the combined effects of COVID-19 aftermath and the Russo-Ukrainian war. The impact of such shocks on Nigeria and her states which is characterised by revenue and debt crises and a plausible food crisis (due to major supply chains disruptions) cannot be overemphasised. And the projections for 2023 which would be the year he would take over office seem more frightening. Hence, he is most likely to start his administration in the midst of dwindling revenues and unprecedented fiscal strain.

As popularly held, the first most effective attempt at solving a crisis is understanding that there is indeed a crisis. And I am particularly happy that he has already demonstrated adequate appreciation of the impact of such global events on the state in one of El-Rufai’s media chats that he attended. However, we advise that he intensifies preparations and constitute a team to determine all probable scenarios thinkable and a crisis management strategy in a bid towards providing proactive governance in consonance with the spontaneity that usually characterise crises eruption.

Tax administration and compliance has seen unprecedented improvements in Kaduna state. However, predicating economic planning and IGR targets based upon the trajectory of the IGR figures obtained within these past few couple of years might be counterproductive. This is because I feel the state Internal Revenue Service was only able to achieve very ambitious targets because of the retrievals of huge tax backlogs spanning the previous decade (and beyond) via the instrumentality of the improved tax compliance system of the El-Rufa’i administration. Recording these backlogs against the respective years they were due for payment would give a more proper picture of our IGR standings for the years of Elrufai’s administration. Hence, Uba Sani is advised to prepare for the possibility of a decline in IGR relative to the prevailing trajectory and plan for improvement.

Improving them would mean preserving the renewed tax regime as reformed by El-Rufa’i and sustaining the state’s ease of doing business and investment promotion drive. It would also mean relentlessly committing to consolidating upon the current administration’s efforts towards encouraging and incentivising value-added manufacturing with linkages to agriculture and other primary resources sectors (state comparative advantages) for continued industrialisation and job creation and increased export to improve the state’s economy and contribute to solving the supply side of national economic crisis. It is advised that the capacities of institutions like KADIPA, KMDMC, KMDC, KIFC be further strengthened to enhance their service delivery.

The current debt portfolio of Kaduna state is considered sustainable. Fitch Ratings just recently affirmed Kaduna state’s Long Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to be at ‘B’ with a Stable Outlook. However, projections of revenue inadequacies(from decline in both FAAC and IGR) and liquidity challenges for states might force the Uba Sani administration towards the path of securing more debts. Kaduna state External and Domestic Debt stock stand at $586 million and N78 billion respectively according to DMO’s recent data. Hence, he is advised to constitute a team to assess the state’s current standings and offer preliminary recommendations for as far as debt management and sustainability are concerned. Such preliminary assessment and plans would serve the purpose of reassuring Kaduna state citizens during campaigns and also as a strategic framework to be considered by the Budget and Planning Commission (which should also be adequately strengthened) when he assumes office.

Social welfare is one of the trademarks of Uba Sani’s campaign. Hence, he and his team are advised to subject the state’s current social protection policy to proper study to synchronise his peculiar approach and thoughts on welfarism and social investment with the existing policy framework. He is also advised to prioritize the establishment of the Kaduna State Social Protection Agency (if the current administration doesn’t before it ends) to streamline social protection and investment programs for greater efficiency. The people have high hopes on him.

He is also advised to prioritise the improvement of the state’s productivity both in the primary and secondary sectors of the economy. Such cannot be achieved without improving the security situation of the state which affects major socioeconomic activities. I am glad to have heard him speak at the recent gubernatorial dialogue(while delineating issues of concern for governance) where he proved to have adequate understanding of the intricacies of the insecurity situation, the scope of the state government authority and states are pretty much constrained. We advise that he consolidates on Gov Elrufai’s efforts by leveraging his superior negotiating prowess(being a 5-star legislator) to exhaust every avenue available for state-federal collaboration in the fight against insecurity (as in the case of securing NAF’s leave to fly drones for improved surveillance and others)”.

That Uba Sani has today reiterated the financial status of the state should not come forth as an anomaly. I had expected that such issues would be adequately discussed during the campaign season so as to intimate citizens of Kaduna state of the challenges ahead and the commitment of his administration to surmount those challenges. It is nevertheless not late.

Now while Governor Uba Sani reserves all rights to keep the citizens of the state abreast of prevailing realities, he is also expected to own them up and further prove his stated commitments to solving them as he promised during the campaign season.

I do not see the need for the sensationalisation of the matter as it is coming from different fronts. More so because Governor Uba Sani would also be servicing the budget deficit of N171 billion for the Kaduna state 2024 budget with about N150 billion in loans. If we continue to sensationalise the matter as it regards the previous administration, what becomes of the conversation around Uba Sani’s desire to seek N150 billion (about $136 million) loan to cover the 2024 budget deficit, in just one budget cycle?

I think it is better we focus on the merits of the loans vis-a-vis debt sustainability metrics rather than the blame game. Conflict entrepreneurs should be shamed!

Abdulhaleem Ishaq Ringim, public affairs analyst, writes from Zaria via [email protected]