Financial Storm: 20 Governors Borrow N446bn Amid Mounting Debt Crisis

20 Nigerian state governments have borrowed a total of N446.29 billion in the first half of 2024, despite a 40% increase in statutory allocations from the Federation Account. This development follows a significant drop in internally generated revenues (IGR), with debt servicing taking a toll on states’ budgets.

According to data from state budget implementation reports and the BudgIT-backed Open Nigerian States platform, 29 states used up to 80.7% of their IGR for debt servicing within the same period, underscoring the financial strain many sub-national governments face. The combination of inherited debts and a volatile economic environment has created a perfect storm for state finances, forcing many to take on more loans to meet their operational needs.

Increased Allocations, More Debt

In 2023, the Nigerian Governors Forum saw the highest Federation Account Allocation Committee (FAAC) disbursements in seven years, spurred by economic reforms such as the removal of fuel subsidies and currency devaluation. These reforms were expected to provide financial relief to state governments by boosting revenue. However, despite the increase in FAAC allocations, state governments have continued to borrow heavily, with much of the borrowed funds being used for debt servicing.

Reports indicate that Osun, Ondo, Kaduna, and Cross River states have deficits ranging from N10 billion to N27 billion, with most of their FAAC funds dedicated to debt repayments. Kaduna State, for instance, under Governor Uba Sani, inherited $587 million, N85 billion, and 115 contractual liabilities. The governor has openly criticized the financial challenges inherited from previous administrations, which he claims have impeded the state’s ability to pay salaries and meet obligations without further borrowing.

Debt Burden Across the States

From July 2023 to March 2024, 22 states spent N251.79 billion on debt servicing, much of it inherited from previous administrations. Ekiti, Cross River, and Ogun states have even sought a suspension of foreign debt repayments, citing exchange rate volatility and high debt burdens. Their request was denied by FAAC, leaving these states to grapple with mounting financial pressures.

An analysis of the budget implementation reports shows varying degrees of debt servicing burdens across states. Akwa Ibom, Borno, Cross River, Edo, Katsina, and Niger spent between 60% and 80% of their IGR on debt servicing. States like Abia, Anambra, Bayelsa, Delta, Ebonyi, and Ekiti spent between 13% and 58%, while some, including Adamawa, Bauchi, Gombe, and Kano, exceeded their revenue in debt payments.

Lagos State, however, stood out with an impressive IGR of N603.71 billion while paying N201.49 billion in debt servicing costs. In contrast, Plateau State recorded the highest debt-to-revenue ratio, spending N61.23 billion on debt but earning only N11.11 billion in IGR, resulting in a negative debt ratio of -550.76%.

Borrowing to Fill Deficits

Cross River State emerged as one of the top borrowers, taking loans amounting to N121.22 billion, followed by Oyo State with N55.36 billion, and Kogi State with N41.22 billion. Other significant borrowers included Katsina (N34.09 billion), Niger (N34.03 billion), and Gombe (N32.38 billion). Meanwhile, states like Edo, Osun, and Plateau had the least borrowing, with loans ranging from N250 million to N633.73 million.

These loans, largely sourced from multilateral and international creditors, aim to cover budget deficits and essential services. However, experts warn that the growing debt burden could hinder economic growth and social development in the long term.

Economic Strain and the Naira Devaluation

Financial experts attribute the increasing debt burden partly to the devaluation of the naira, which has made foreign debt servicing more expensive. Dr. Muda Yusuf, CEO of the Centre for Promotion of Private Enterprise, noted that the depreciation of the currency is a major factor contributing to the rising debt servicing costs. “The exchange rate factor is a major challenge in the debt burden of many states,” he said.

Experts have also criticized the high cost of governance at the state level, pointing to inefficient spending and a lack of accountability as factors exacerbating the financial crisis. Professor Segun Ajibola, an economist at Babcock University, highlighted the lack of oversight by state assemblies, which has allowed governors to operate with minimal transparency.

Conclusion

The continued borrowing by state governments, despite increased allocations, raises concerns about fiscal sustainability. While borrowing can be beneficial if directed towards development, experts caution that the current debt levels are unsustainable, especially given the volatility of the naira and the rising costs of servicing foreign loans. Without reforms in governance and spending, states may find it increasingly difficult to meet their financial obligations and deliver on their promises to improve the lives of their residents.