Senate Committee on Local and Foreign Debts has asked the Debt Management Office (DMO) to create a debt ceiling for state governments as their appetite for raising funds through the bond market increases.
The committee, led by its Chairman, Ehigie Edobor Uzamere, gave the instruction while on its oversight function to the DMO's head office at the weekend in Abuja.
The committee said it wanted to ensure that like the Federal Government, states were also being supervised and advised toward a sustainable debt programme.
A rundown of the 15 states which had sought funding from the capital market showed that Lagos top the chart with N275 billion bond issues while Imo had N18.5 billion issued in August 2009.
Others are Kwara (N17 billion); Niger (N6 billion issued in October 2009); Bayelsa (N50 billion issued in June 2010); Kaduna (N8.5 billion issued in August 2010); Ebonyi (N16.5 billion issued September 2010); Benue (N13 billion issued in June 2011); and Edo (N25 billion issued in June 2011) and Gombe N20billion issued early October 2012. Only recently, Delta and Rivers States also issued N200 billion and N100 billion bonds respectively.
Uzamere, specifically commended the DMO for effectively discharging its duties and facilitating the inclusion of the Federal Government Bond in Bonds Index by J.P. Morgan.
He said although it was necessary to borrow in order to develop infrastructure, the Federal Government should not continue to borrow to finance budget deficits.
He also said that the committee would consult widely for an improved remuneration and working condition for staff of the agency in view of the crucial and unique role the institution plays in the current economic and development challenges in the country.
However, responding to the committee's request, Director-General, DMO, Mr. Abraham Nwankwo, said apart from the Securities and Exchange Commission (SEC)'s investment regulatory hurdles which respective states needed to scale before accessing funds from the stock market, the DMO had also put up measures to check excessive bond issue by the states.
He said states are mandated to ensure that monies raised through bonds were strictly used for the purpose for which they were borrowed, adding that such purpose must factor-in the well-being of its people.
Moreover, he said: "No state will be allowed to borrow if its total debt service outlet on a monthly basis is above 40 per cent of its Federation Account Allocation Committee (FAAC) allocation for the past 12 months. This is bearing in mind the fact that every state should have Internally Generated Revenue, IGR and so should not depend fully on FAAC. There is no state in Nigeria that should not be viable without oil."
Accordingly, he said "No state will be allowed to borrow if its total debt service outlet on a monthly basis is above 40 per cent of its FAAC allocation for the past 12 months. This is bearing in mind the fact that every state should have Internally Generated Revenue, IGR and so should not depend fully on FAAC.
There is no state in Nigeria that should not be viable without oil.
"So once your debt service each month falls within the range and you have IGR as a fall back, then you may wish to borrow to carry out some infrastructural developments."