States’ debt reaches ₦11.4tn as federal allocations increase
The total debt of Nigerian states has risen to ₦11.47 trillion as of June 30, 2024, reflecting a 14.57% increase from ₦10.01 trillion in December 2023.
This surge comes even as allocations from the Federation Account Allocation Committee continue to rise, according to data from the Debt Management Office’s latest public debt report.
The increase in state debt was largely driven by a sharp rise in external debt, compounded by the naira’s devaluation.
External debt for the states and the Federal Capital Territory rose from $4.61 billion to $4.89 billion, marking a 6.14% increase.
However, in naira terms, this debt surged by an alarming 73.46%, from ₦4.15 trillion to ₦7.2 trillion, due to the naira’s devaluation from ₦899.39/$1 in December 2023 to ₦1,470.19/$1 by June 2024.
Domestic debt for states and the FCT saw a significant decline of 27.12%, dropping from ₦5.86tn to ₦4.27tn.
It was further observed that there was an increase of ₦200bn or 4.91% between March 31 (₦4.07tn) and June 30, 2024, indicating that subnational debt is on the rise after a fall earlier this year.
In total, states and the FCT accounted for 8.54% of Nigeria’s public debt of ₦134.3tn in June 2024, down from their 10.29% share in December 2023, even as their nominal debt levels increased.
Recall that Nigeria’s total public debt stock surged by ₦12.6tn in three months to ₦134.3tn ($91.3bn) by the end of the second quarter of 2024. This was a 10.35% increase from the ₦121.7tn ($91.5bn) recorded in the first quarter of this year.
Although Nigeria’s debt appeared to reduce in dollar terms, an increase of ₦5.55tn or 8.45% in domestic debt, from ₦65.65tn in Q1 2024 to ₦71.2tn by Q2 2024 was observed.
Additionally, there was an increase of $780m in external debt, rising from $42.12bn in the first quarter of this year to $42.9bn by June 2024.
READ ALSO: Battle for the soul of Ngeria’s oil sector by Kazeem Akintunde
Domestic debt continued to dominate Nigeria’s public debt portfolio in Q2 2024, accounting for 53% of the total debt stock at ₦71.2tn ($48.4bn).
The devaluation of the naira significantly impacted the overall debt portfolio, with external obligations swelling in naira terms despite relatively modest new borrowings.
The rise in debt comes amid increased FAAC receipts, buoyed by higher oil prices and foreign exchange gains.
The Nigeria Extractive Industries Transparency Initiative recently noted that the Federation Accounts Allocation Committee (FAAC) disbursed ₦3.473tn to the three tiers of government in the second quarter of 2024. This reflects an increase of ₦46.77bn (1.42%) compared to the first quarter of 2024.
The Federal Government received ₦1.102tn, representing 33.35% of the total allocation, while 36 states received ₦1.337tn (40.47%) and the 774 local government councils shared ₦864.98bn (26.18%).
Additionally, nine oil-producing states received ₦169.26bn as their derivation share from mineral revenue.
A comparison with the previous quarter shows that the Federal Government’s allocation decreased by ₦41.44bn (3.76%), while state governments saw an increase of ₦58.13bn (4.29%), and local government councils experienced a rise of ₦30.82bn (3.57%).
NEITI noted an upward trend in revenue allocations in the latter months of 2023 and early 2024. Total monthly disbursements increased from ₦1.094tn in January 2024 to ₦1.098tn in February but then declined slightly to ₦1.065tn in March.
On state-by-state allocations, Delta received the largest share of allocations in Q2 2024, with a gross allocation of ₦137.36bn, including oil derivation. Lagos followed with ₦123.28bn, and Rivers came in third with ₦108.104bn. Nasarawa, Ebonyi, and Ekiti states received the least, with ₦24.735bn and ₦25.40bn, respectively.
It was further observed that within Q1 and Q2 2024, Rivers State recorded the highest percentage increase in debt during the period under review.
The state’s debt rose by 67%, jumping from ₦232.58bn in March to ₦389.20bn in June, an increase of ₦156.62bn.
Similarly, Taraba State’s debt surged by 160%, rising from ₦32.64bn to ₦84.72bn, a difference of ₦52.08bn.
Niger State followed with a 70% increase, adding ₦60.22bn to its March debt stock of ₦86.07bn, bringing its total to ₦146.29bn by the end of June.
These sharp increases highlight a significant reliance on borrowing to finance government projects and other commitments, raising concerns about the sustainability of such debt levels.
Lagos State, which continues to carry the highest debt burden among the states, saw a 5% decline in its debt stock. The state reduced its domestic debt from ₦929.41bn in March to ₦885.99bn in June, reflecting a decrease of ₦43.42bn.
States such as Benue, Kwara, and Nasarawa recorded little to no significant changes in their debt profiles. Benue’s debt stock saw a negligible increase of ₦144.24m, while Kwara’s dropped slightly by ₦23.12m. Nasarawa recorded a marginal decline of ₦187.64m during the same period.
In contrast, Delta State achieved one of the largest reductions in debt stock, decreasing its domestic debt by ₦30.36bn, representing a 9% drop from ₦334.90bn in March to ₦304.54bn in June. Bayelsa and Ebonyi states also managed to reduce their debts by 6% and 9%, respectively.
Since the DMO did not release any data on the external debt of states for March 2024, journalists focused their analysis on reports for December 2023 and June 2024.
Lagos State continued to top the external debt chart, but its debt decreased slightly from $1.24bn in December 2023 to $1.20bn in June 2024, representing a 3.44% reduction (a decrease of $42.8m).
Yobe State, on the other hand, remained the state with the lowest debt. Its external debt dropped marginally from $21.49m in December 2023 to $20.49m in June 2024, a 4.63% reduction.
Enugu State recorded the most significant debt reduction during the period, slashing its debt by 32.83%, from $120.45m in December 2023 to $80.91m in June 2024. This substantial reduction of $39.54m highlights deliberate debt repayment or restructuring efforts.
Similarly, Gombe State reduced its debt by 35.49%, falling from $54.88m to $35.40m, a difference of $19.48m.
Rivers State recorded the most significant debt increase, rising by 151.80%, from $80.94m in December 2023 to $203.81m in June 2024, an increase of $122.86m.
Borno State’s debt also grew substantially, increasing by 136.90% from $20.49m in December 2023 to $48.54m in June 2024, equating to a rise of $28.05m.
Katsina State followed closely with a 124.57% increase, as its debt rose from $50.31m to $112.98m, a difference of $62.67m.
The news earlier reported that debt servicing costs incurred by 29 state governments consumed 80.7% of their Internally Generated Revenue during the first six months of 2024.
With such a large portion of revenue being used to service debt, it becomes increasingly challenging for states to achieve long-term economic stability and improve the quality of life for their residents.
Earlier this year, Kaduna State Governor, Uba Sani, had complained vehemently about the huge debt burden inherited from previous administrations, lamenting that it had halted the prompt payment of salaries and led to more borrowings in the last nine months of his government.
Economist Paul Alaje had earlier told journalists that debt servicing and loans were burdens that could limit economic development at the sub-national level.
Paul, speaking in an earlier interview, stated that the huge debts left by past administrations were detrimental to growth, and added that loans collected by state governments and the projects the governors spent the money on should be properly investigated.
A professor of Economics at Babcock University, Segun Ajibola, recently stated that the enduring problem of high governance expenses had persisted at the state level, with inadequate oversight and accountability resulting in minimal economic benefits for grassroots citizens.
Ajibola, a former president of the Chartered Institute of Bankers, lamented that state assemblies had also abandoned their oversight duties, leaving state governors to operate with no transparency or accountability.
The Fiscal Responsibility Commission last week expressed concerns over Nigeria’s current fiscal federalism structure, cautioning that the system may be unsustainable in its present form.
Speaking at an awareness programme on transparency and accountability for North-central sub-nationals, the Commission’s Chairman, Victor Muruako, warned that the discretion enjoyed by states and local governments in their financial management could jeopardize national economic stability.
Proofreading by Uchechi Ojo, Sub-editor at NeptunePrime.
Follow the Neptune Prime channel on WhatsApp: https://whatsapp.com/channel/0029Va74ZvU2v1IqKByXoX3d
Do you have breaking news, interview request, opinion, suggestion, or want your event covered? Email us at neptuneprime2233@gmail.com
