THE total debts of Nigeria’s 36 states rose to N11.47 trillion as of June 30, 2024, despite allocations from the Federal Accounts Allocation Committee (FAAC) and their own internally generated revenues (IGR).
According to an analysis of public debt data released by the Debt Management Office (DMO), this represents a 14.57% increase from the N10.01 trillion recorded in December 2023.
The external debt for the states and the Federal Capital Territory also increased from $4.61 billion to $4.89 billion during the same period. When converted to naira, these debts grew by 73.46%, from N4.15 trillion to N7.2 trillion, driven by the naira’s devaluation from N899.39/$1 in December 2023 to N1,470.19/$1 by June 2024.
Conversely, domestic debt for the states and the FCT decreased from N5.86 trillion to N4.27 trillion. Overall, the states and the FCT contributed to Nigeria’s total public debt of N134.3 trillion in June 2024, a reduction from their 10.29% share in December 2023, even though their nominal debt levels have risen.
Earlier reports reveal that sub-national governments continued to face a persistent reliance on borrowing to fund their budgets in 2023, as total debt among the 36 states surged by 38.1%, rising from N7.25 trillion in 2022 to N10.01 trillion by December 31, 2023.
BudgIT’s 2024 State of States report, released on Tuesday, indicated that the debt increase was partly due to a N606.12 billion rise in domestic debt, which resulted in an average yearly growth rate of 11.4%. By December 31, 2023, total domestic debt stood at N5.86 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 noted that the liberalization of the exchange rate put additional financial pressure on states, significantly increasing their foreign loan repayment obligations in naira terms.
Lagos State continued to lead in foreign debt, comprising 26.9% of the total, equivalent to $1.24 billion.
The DMO’s report follows BudgIT’s findings that 32 states relied on FAAC for at least 55% of their total revenue in 2023. The 2024 report underscores the excessive reliance of state governments on federally distributable revenue, highlighting their vulnerability to oil price fluctuations and other external shocks.
The report also mentioned that 14 states depended on FAAC for at least 70% of their total revenue, while 34 states (excluding Lagos and Ogun) received at least 62% of their recurrent revenue from federal transfers. In fact, 21 states relied on federal transfers for over 80% of their recurrent revenue.
In the 2023 fiscal year, the overall revenue of all 36 states in Nigeria saw a significant increase of 31.2%, rising from N6.6 trillion in 2022 to N8.66 trillion. This growth surpassed the previous year’s increase of 28.95%, indicating an overall improvement in fiscal performance. Lagos State contributed N1.24 trillion, making up 14.32% of the total revenue of the 36 states.
Gross FAAC grew by 33.19%, rising from N4.05 trillion in 2022 to N5.4 trillion in 2023, contributing to 65% of the year-on-year growth in the combined revenue of the 36 states.
The report pointed out that the IGR of the 36 states rose by 20.33% to N2.19 trillion in 2023, up from N1.82 trillion in 2022, signaling improvements in the states’ capacity for domestic resource mobilization. However, growth was uneven, with six states realizing IGR increases exceeding 50%, notably Zamfara at 240.22%, while seven states experienced decreases in IGR, with Jigawa showing the steepest decline.
Lagos State remained the largest contributor to total state revenue, accounting for N1.24 trillion, or 14.32% of the overall revenue. Notably, only Lagos and Rivers states managed to generate sufficient IGR to cover their operating expenses, with ratios of 118.39% and 121.26%, respectively.
In contrast, states like Akwa Ibom, Bayelsa, and Taraba required more than five times their IGR to meet their operating expenses, depending heavily on federal transfers and external assistance.
BudgIT cautioned that the fiscal viability and long-term sustainability of states largely depend on their ability to mobilize internal revenues. This can be achieved by leveraging natural resources, adopting technology, engaging in public-private partnerships, and enhancing human capital to finance critical infrastructure and social programs, pay the new minimum wage, and amend the broken social contract.
The report emphasized that states need to digitize revenue collection, eliminate cash transactions, utilize tax intelligence to assess liabilities—particularly for high net-worth individuals—ensure compliance, harmonize various taxes, fully implement a treasury single account, and improve the business environment.
