Policy Alert Raises Alarm over Rising Debt Profile of Akwa Ibom State
…Calls on House of Assembly to review N7 billion loan Approval
By Ekemini Simon
Policy Alert, a Civil Society Organisation working on fiscal justice has raised alarm over the rising debt profile of the State and high rate of borrowing by the Akwa Ibom State government.
The Akwa Ibom State House of Assembly recently gave Governor Udom Emmanuel the approval to borrow N2 billion for Agriculture and N5 billion for Housing totaling N7 billion despite recent report from Debt Management Office showing that the domestic debt profile of the State has risen to N232.2 billion in the first quarter of 2021.
Communications and Stakeholder Engagement Officer of the organisation, Mrs. Nneka Luke-Ndumere, in reaction to the recent N7 billion loan approval noted that the decision of the State government to engage in loan acquisition spree despite its aggravating debt situation places the State on the pedestal towards unsustainable debt profile.
She described as ill advised the decision of the State to acquire fresh N7 billion loan when the domestic debt profile of the State as of March 2021 already stands at N232 billion, placing the State as the third highest in debt burden among the 36 States of the federation and Federal Capital Territory.
Luke-Ndumere also pointed out that the recent N7 billion loan approval for the State is a breach of the Akwa Ibom State Fiscal Responsibility Law 2021, stressing that the State failed to provide cost benefit analysis in the recent loan approval.
“The Fiscal Responsibility Law which should guide the State in matters like this provides in section 45 (1) that the State Government shall not only specify the purpose for which every borrowing is intended but must also expressly and convincingly present a cost benefit analysis detailing the economic and social benefits of the purpose to which the intended borrowing is to be applied.” she said.
“The state government failed in its fiscal responsibility by not providing these prerequisites for loan acquisition and the House of Assembly on its part failed in its responsibility by approving the loan request without interrogating it against the provisions of a law it made recently.
“We must understand that there is a very questionable trend of loan acquisition in the State which makes the debt profile of the State very close to unsustainability because these loans are not self-liquidating. Instead, the state pays hugely for interest on these loans.
“Do not forget that the State in 2019 which was an election year acquired loans to the tune of N48 billion and in 2020 acquired N7.8 billion. Now, in just half part of the year, N7 billion has been approved for acquisition. You can now predict the expected trend before the end of the fiscal year. We cannot continue with this trend of frivolous loan acquisitions.”
Luke-Ndumere added: “According to the Accountant General’s report and Audited Financial Statements for 2019, the State spent a whopping N12.2 billion on payment of interest on loans. As of January 1, 2019, the state’s outstanding loans stood at just N93 billion, but the debt stock has now risen to N232 billion excluding the N7 billion approved last week. Imagine the enormous social opportunity cost of future loan repayments. In 2020, the state spent N25.2 billion on loan repayments, with over 40 percent of that amount spent on servicing interest rates on internal loans. It is alarming to imagine the lives that could have been touched by billions of naira wastefully spent in this way over the years and the possible uses of the money that will be spent servicing future loans as the state’s debt continues to rise.”
She further expressed worry that all the loans are taken from commercial banks at non-concessional rates, a situation that would eventually translate to huge debt burden to successive administrations and generations to come, urging the state House of Assembly to redeem its image by reviewing its decision on the loan approval without delay.