FENRAD questions Abia State’s borrowing plan to fund 2025 budget deficits

Stanley Ihedigbo

A leading civil society group in Abia State, the Foundation for Environmental Rights, Advocacy and Development (FENRAD), has scrutinized the proposed ₦750 billion budget presented to the Abia Eighth Assembly by Governor Alex Chioma Otti.

FENRAD’s review of the budget’s fundamentals and assumptions has sparked concerns about the state’s financial management and planning.

According to the group Executive Director, Comrade Nelson Nnanna Nwafo, while not all the assumptions of the estimated sum were disclosed, certain fundamentals are relatively opaque and deserve a keen interrogation by well-meaning Abians, civil society groups, the media, and the same House of Assembly before whom the draft was presented.

“The Foundation wishes to express the following concerns. The said budget of 2025 did not address the budget of 2024, especially in the area of implementation to know whether there is a deficit or surplus. Proposed budgets should address the current financial year from which its assumptions are planned based on current realities. The 2025 budget, termed ‘Budget of Sustained Momentum,’ did not state what the 2024 budget, being Gov. Otti’s first fully implemented appropriation, achieved based on performance. To this end, the Foundation wishes to know what the level of implementation of the 2024 budget (in percentage) is, what items have been realised, and what subheads are still unmet.

“That the Abia government will not resort to reckless borrowing to fund deficits and has not borrowed a dime but has been repaying and financing loans in the last year or so. While this is commendable and could enhance fiscal discipline, it does not correspond with the reality on the ground. In March of 2024, for example, Gov. Otti hinted at $125 million in AB Seed Loans from the Islamic Development Bank, IDB for part-financing the 2024 budget, even the external loan component for 2024 appropriation also includes a facility from the African Development Bank, (AfDB). There are domestic loans to be processed by commercial banks too. If indeed Abia did not borrow during the period under review, how did the state part-finance its ₦523 billion budget for the financial year of 2024 with internally generated revenue that is less than ₦1.5 billion monthly? As at the last check by the Foundation, there are no available records from the Debt Management Office, DMO, or Nigeria Bureau of Statistics ( NBS) giving Abia a fiscal clean bill of health as a state that has never increased external or domestic borrowing, though the present government is working hard to adjust the fiscal space.

“That the 2025 budget, with an estimated ₦750 billion in sum represents a 30% increase when compared with the 2024 budget of ₦523 billion.
The Foundation thinks this assumption is only in nominal value as the value of the naira – using Nigeria’s budgetary benchmark of 2024 – was pegged at ₦700/$. Today, with a ₦750 billion against the unrealistic federal benchmark of ₦1,400/$ for the 2025 fiscal year, the Foundation thinks the comparison between 2024 and 2025 estimates pales in significance with the dollar trading at over ₦1,650 at the parallel market currently. This is made worse by declining purchasing power,” he explained.

He further explained that Abia internally generated revenue, IGR will grow by 213%.

“Currently, Abia IGR is a bit vague or near imprecise, but the governor said his administration is set to increase the sum to ₦100.6 billion, meaning the state is looking to get about ₦8 billion monthly. The Foundation believes this is achievable but insists it must be achieved by plugging leakages and exploring other viable revenue alternatives, not creating a problem of tax burden for Abians.

“That the statutory allocation from the federal government will grow by 96%.
The Foundation is of the view that the governor ought to have elaborated more on this projection. Though based on the budget call circular (BCC) for 2025, statutory allocations are expected to grow by 152%, questions should be asked because these allocations, whether from oil receipts or non-oil receipts, are subject to factors external to the state. This assumption of the budget is precarious because while the federal government recorded an increase in capital inflows, oil, and non-oil, debt stock too increased on a year-on-year basis. Also, considering worsening inflation, unemployment, food insecurity and crisis, and foreign exchange liquidity problems, the 2025 budget of the federation may witness fiscal shocks capable of affecting statutory allocations to states. So how independent can the Abia budget be?

“That VAT will increase by 35% to about ₦55.1 billion. This is another assumption the Foundation seeks clarification.
VAT is neither in the concurrent nor exclusive list of the federation, but it is administered by the federal government on behalf of the federation. Besides, the current tax reform debate on making VAT derivation-based has not seen the light of day at the National Assembly. So how will the increase come?

“There are externalities to be looked into, and these are areas affecting budget implementation over which the state may have no form of control. Already, foreign exchange and inflation had been referred to as ‘headwinds’ that ‘dealt very harsh blows to our fiscal plans and proposals’ in the governor’s speech; how does the proposed budget of 2025 intend to navigate these external headwinds given that inflation and FX problems are not letting up as of yet?

“With ₦611.7 billion, that is 82% of the proposed sum, allocated to capital projects and ₦138.6 billion, being 18% of the estimates, mapped out for recurrent expenditure, Abians ordinarily should expect a lift, but the challenge remains how to realise the targets of the budget without sending the state over the fiscal cliff.

“The governor revealed plans to build 184 reading rooms and libraries across the wards and a perimeter fence project in 262 schools in line with the ‘safe school initiative’, and this brings the Foundation to enquire whether needs assessments were carried out to ascertain the priority of each of these schools because some schools may need more unit of classroom blocks, toilets and laboratories than fences. Unless there are plans to restore these schools, building fences may not address learning gaps”, he stressed.

According to the Human Rights Activist, then, having proposed to generate revenue from federal allocation, internal revenue (independent source), and grants, the 2025 budget proposed borrowings from ‘domestic’ and ‘multilateral channels’ for funding the ₦364.1 billion balance, exactly 51 percent of the ₦750 billion budgeted sum.

“This deficit makes the budget quite unhealthy and could lead to a sustained negative variance if not checked now; even Nigeria’s budget of 2025, as seen in the medium-term expenditure framework and fiscal strategy paper, MTEF-FSP, the deficit is 27% at the total cost of ₦13 trillion.

“Though the Foundation expected an increase in wage bill or personnel cost for the 2025 fiscal year following minimum wage increase and attendant consequential adjustments, the proposed 2025 budget makes borrowing inevitable. Granted, most loans are project-tied, but there is a need for a significant cut of deficits.

“The Foundation favours an open and inclusive budget as it calls on the Abia State House of Assembly to consider the proposals item by item and see whether leakages could be plugged or adjustments made. The House Committee on Finance must perform steady and sustained oversight to ensure that there is quarterly reporting, monitoring, and evaluation of the budget, as well as proper auditing to enhance fiscal prudence.

“The assumptions of the Abia budget for 2025 are not certain, even the governor hinted at his optimism when he said: We remain optimistic that the economic environment will be more stable in the New Year even as we work hard to control the variables that are within our powers,” he emphasized.