States In Nigeria Reel Under N10trillion Debt Burden As Lagos Accounts For 26% Share
The organisation revealed this in its States of States presentation event for 2024.
A report by socio-economic platform, BudGIT has revealed that the debt owed by states surged to N10.01trillion in 2023.
The organisation revealed this in its States of States presentation event for 2024.
“The total debt stock of the 36 states surged by 38.1%, from N7.25tn in 2022 to N10.01tn in 2023. This growth was partly driven by a N606.12bn increase in domestic debt, resulting in an average year-on-year growth rate of 11.4%.”
“By December 31, 2023, the total domestic debt stood at N5.86tn. The situation was further complicated by rising foreign debt, which increased by 4.1%, from $4.43bn in 2022 to $4.61bn in 2023.”
The report also noted that the fall of naira put more financial pressures on states.
“The liberalisation of the exchange rate exacerbated the financial strain on states, significantly raising their foreign loan repayment obligations in Naira terms.”
Lagos State accounted for 26.9% of foreign debt owed by states in the country.
“Lagos State remained the most indebted in foreign currency, accounting for 26.9% of the total foreign debt, equivalent to $1.24bn. Further analysis of the debt landscape revealed a considerable variance of N2.74tn in debt repayment obligations when comparing the exchange rate shift from N899.39 per dollar as of December 31, 2023, to the new rate of N1,492.9 as of June 2024.”
“The devaluation exposed many states to heightened financial risk, particularly the eight states where more than 50% of the total debt is dollar-denominated.”
Kaduna State was quoted as having the highest foreign debt portfolio among the states if foreign debts were compared as a ratio of total debt.
“Kaduna and Edo had the highest foreign debt-to-total debt ratios, at 86.06% and 60.54%, respectively. The other states in this group—Ondo, Bauchi, Lagos, Enugu, Ebonyi, and Anambra—had ratios ranging from 50% to 59%.”
“The debt burden also varied significantly across the country, with the average subnational debt per capita reaching N40,469 in 2023. Twelve states exceeded this benchmark, with Lagos having the highest debt per capita at N138,034. In addition to the existing debt stock, the states have exiting liabilities totalling N1.19tn”
“N408.69bn is owed in contractor arrears, N521.36bn is owed in pension and gratuity arrears, N79.64bn is owed in salary and other state claims, N4.36bn is owed in judgement debt and other pending litigation, and other payables and liabilities amount to N182.79bn.”
The report also warned that ability of states to survive depends on their ability to mobilize revenue.
“The fiscal viability and long-term sustainability of states heavily depend on their capacity to mobilise revenues internally by effectively leveraging their natural resource endowments, technology, public-private partnerships, human capital, and effective consequence management. This capacity is crucial for financing essential infrastructure, investing in human capital development and social protection, meeting the new minimum wage and its consequential adjustments, and repairing the fractured social contract.”
“To achieve debt sustainability, states must also curb their reliance on foreign loans, especially in light of exchange rate volatility and shrinking fiscal space, to minimise exposure to unfavourable exchange rates. Additionally, states should establish robust frameworks for debt transparency and accountability”
“Ensuring that borrowed funds are allocated to high-impact projects with clear economic returns,” said Iniobong Usen, Head of Research and Policy Advisory, BudgIT.
There have been consistent concerns on the loan penchant of states as they try to augment their revenue which remains poor in terms of actual budget overttime.
While states have continually expressed willingness to commit to better revenues and in some instances recording better internal revenues, they continue to struggle fiscally.
