No society can surely be flourishing and happy, of which large part of the population is poor and miserable. – Adam Smith 

The 2007 Fiscal Responsibility Act (FRA) has been kind to all government tiers by allowing them to borrow cheap money as long as markets are happy to provide, subject to legislative approval. The Act provided Kaduna state with the opportunityto agree a record $350 million loan from the World Bank to finance part of el-Rufai's development plan. The loan's twointerest rates, 3.7% for $216 million and 2.2% for $134 million were low enough to satisfy the FRA condition.

The National Assembly rejected the initial loan application in 2017. All three senators from Kaduna state refused to support the rationale to borrow such humongous amount, given the state's weak financial outlook. The lawmakers concluded that the details of the loan's cost-benefit analysis were not viable. The refusal to support the loan application cost Senator Shehu Sani and Senator Suleiman Hunkuyi their seats.

However, in 2020, the second application was surprisingly successful. But not until after the State Governor's Chief of Staff caused an uproar during the Senate committee hearing.The Senate committee members were uneasy as the Chief of Staff claimed ignorance about the state's rising debt profile.He also could not present any evaluation document to defend the loan application.

It is wrong to depict the state's debt profile as rising. The debt management office (DMO) report for September 2020 ranks the Kaduna second, behind Lagos, for accumulating sub-national debt. The report puts the state's total external debtstock at $570 million. The debt includes $15.5 million of the new Chinese loan and 75% of the $350 million World Bank loan. Comparatively, a few months into el-Rufai's regime,December 2015, the state's external debt was put at $226 million. For internally generated revenue (IGR), a source for the state to pay its debt, Kaduna is raising more money than before. In 2015, the state was generating around N13 billion,but in 2019, the state generated around N44 billion. Still, over 50% of the state's revenue comes from oil-related transfers from the federal government. Thus, being the tallest midget in town is not a silver lining. 
Dr Nasir Aminu

The state is currently financing interesting infrastructural projects with loans from China and other domestic sources, but evaluating the impact of those projects is not a topic today. As the dust settles, having received three-quarter of the World Bank loan sum, one question stands out. Why did el-Rufaiagree to borrow $350 million with unfavourable loanconditions? At the cost of repetition, let me be clear about this peculiar question. 

The loan agreement includes a critical condition that the state must spend 78% of the $350 million on recurrent expenditure. That means the state can only spend on paying for consultancy, training, and all sorts of fees exclusive of capital forms. The agreement is a dark-grey area for the FRAcondition that allows borrowing for only capital expenditure and human development.

On the other hand, el-Rufai decided to retrench a third of the state's workforce who could benefit from the loan agreement.The state has a 43% poverty rate and a 40% unemployment rate, before the pandemic. Given a choice, the median Kaduna resident would not vote to borrow $350 million, their future earnings, and spend over three-quarter of the sum on recurrent expenses. Rationally, such amount should be spent onfinancing tangible investments, like projects in power and the primary sectors, which, all things being equal, would create jobs and prosperity.

For the remaining 22% of the loan, the condition stipulates that it can only be spent on soft capital expenditure, not hard expenditure. That means the state cannot use the loan to build a World Bank-funded infrastructure of any kind, that is, there will be no building of bridges, roads, schools, markets, water projects, et cetera. Contrary to the documented agreement, el-Rufai told the media that the loan was granted because a World Bank official saw the need to improve the state's dilapidated infrastructure. Similarly, Senator Uba Sani explicitly vouched that they would use the loan to build infrastructure.

Thus, with the World Bank loan, Kaduna's sub-national debthas more than doubled. It will have no tangible project from the loan. Its workforce has reduced, which contributed to high unemployment and poverty rates. El-Rufai should be ready to defend himself when accused of trousering the whole $350 million. Evidently, the public is yet to fully appreciate quite how unhinged he is when it comes to the efficient allocationof public finances.

But there is one more question. Is the state's rising debt profilesustainable? It depends on the state's economy. If Kaduna were to default on its sub-national debt, the federal government would be legally responsible for bailing-out the state.

In October 2020, Fitch, a global credit rating agency, classified Kaduna's debt metrics as weak, with a grim financial outlook. The agency reports that the main sectors that drive the state's economy are the primary and service sectors. However, the state is only focusing on rich mineral resources to attract foreign investors. However, the state reported a paltry capital inflow of $4 million in 2020. Comparatively, Niger state, with the lower debt burden, attracted 16.4 million. At the same time, Lagos had a capital inflow of $8.6 billion in the same year. The high unemployment and poverty rate of the fast-growing 8.2 million population adds to the state's weak socio-economic standards. Thus, it will be difficult for the state to sustain its rising debt profile.

In el-Rufai's world, a sustainable strategy to improve the state's financial outlook was for the federal government to impose a tax liability, of N1000, on every adult as part of citizenship obligation. He did not think of proposing higher taxes for the wealthy residents or taxing the profits of companies who are awarded large contracts. One should recommend el-Rufai to school himself on Adam Smith's canons of taxation. Frankly, given his prior unbearingeffort to self-educate, I doubt reading will give him any wisdom.

To summarise, the rationale behind the World Bank loan is not to unchain the state's finances, but rather to put its finances in chains. And the spurious thoughts about bringing back medieval taxation are part of the process of nudging the state along that insidious path. The truth is, the real consequences of el-Rufai's policies will not be known until he is long gone.

Dr Nasir Aminu is a Senior Lecturer in Economics at Cardiff Metropolitan University.

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