SUB-NATIONAL governments in Nigeria faced ongoing challenges in 2023 as they relied heavily on borrowing to support their budgets.
The combined debt of the 36 states rose by 38.1%, increasing from ₦7.25 trillion in 2022 to ₦10.01 trillion.
The findings are detailed in BudgIT’s 2024 State of States report, released yestersay, which noted that the debt increase was partly driven by a ₦606.12 billion rise in domestic debt, resulting in an average annual growth rate of 11.4%. By December 31, 2023, the total domestic debt reached ₦5.86 trillion.
The situation was further complicated by an increase in foreign debt, which rose by 4.1%, from $4.43 billion in 2022 to $4.61 billion in 2023. The report indicated that the liberalization of the exchange rate worsened financial pressures on states, significantly increasing their foreign loan repayment obligations in naira.
Lagos State continued to hold the largest share of foreign debt, making up 26.9% of the total at approximately $1.24 billion.
A closer examination of the debt situation revealed a significant discrepancy of ₦2.74 trillion in repayment obligations due to the change in the exchange rate from ₦899.39 per dollar on December 31, 2023, to ₦1,492.9 as of June 2024. This devaluation exposed several states to increased financial risk, particularly the eight states where over 50% of the total debt is in dollars.
Kaduna and Edo recorded the highest ratios of foreign debt to total debt at 86.06% and 60.54%, respectively. Other states—Ondo, Bauchi, Lagos, Enugu, Ebonyi, and Anambra—had foreign debt ratios between 50% and 59%.
Debt burdens varied widely across Nigeria, with the average sub-national debt per capita reaching ₦40,469 in 2023. Twelve states surpassed this average, with Lagos leading at ₦138,034 per capita.
In addition to existing debts, states reported liabilities totaling ₦1.19 trillion, which include ₦408.69 billion in contractor arrears, ₦521.36 billion in pension and gratuity arrears, ₦79.64 billion for salary and other staff claims, ₦4.36 billion in judgment debt and ongoing litigation, and ₦182.79 billion in other payables.
The report suggests that to achieve debt sustainability, states must curb their reliance on foreign loans, particularly amidst currency fluctuations and diminishing financial resources.
It recommends enhancing domestic revenue generation to reduce borrowing needs and budget shortfalls, implementing fiscal reforms to broaden the tax base and formalize economic activities, and establishing strong frameworks for debt transparency and accountability to ensure that borrowed funds are used for high-impact projects with tangible economic benefits.
Improved coordination between federal and state governments is also deemed crucial for monitoring debt sustainability and advising on borrowing limits to maintain fiscal stability.
