European Journal of Accounting, Finance and Investment

Effect Of Federal Allocation On Debt Management Of States In Nigeria

OLAOYE Festus Oladipupo Ph.D

Department of Accounting, Ekiti State University, Ado-Ekiti, Nigeria

AKINTAYO Oluwatoyin Olusola

Department of Accounting, Ekiti State University, Ado-Ekiti, Nigeria

Keywords: Federal Allocation, Debt Management, States, Nigeria.

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Abstract

This study examined the effect of federal allocation on debt management of states in Nigeria. Specifically the study analyzed both static and dynamic effect of federal allocation on debt management of 18 states sampled across the six geopolitical zone of Nigeria.. Data used in the study were sourced from Debt Management Office of Nigeria; FAAC allocation reports and National Bureau of statistics, over the period of 10 years spanning from 2010-2019. Data were analyzed using the two–step system generalized method of moment (GMM). Result revealed that federal allocation exert insignificant negative static effect on the ratio of debt to IGR (-0.6027023, p > 0.05); insignificant positive dynamic effect on ratio of debt to IGR (1.238224, p > 0.05), while the lagged measure of debt management exert significant effect on it current value (0.5479158, p < 0.05). The study concluded that federal allocation has no significant effect on the level of debt management of states in Nigeria viewed both from static and dynamic perspective. And that the level of debt management in the current period could be a significant frontier of debt management looking forward given the established significant autoregressive effect of debt management on itself. Thus this study recommended that federal government should set benchmark for debt accumulation at state level based on their capacity to generate revenue internally and also evaluate debt management frontiers of states across the nation so as to foster be management of resources across the and reduce over reliance of borrowing. In addition state government should be proactive in designing debt structure, this is necessary so as not to dampen future revenue generation and state performance stability by excessive debt accumulation and/or overhang