The total debt of Nigeria’s 36 states surged to N11.47 trillion by mid-2024, marking a 14.57% increase from N10.01 trillion at the close of 2023.
This rise in debt comes despite federal allocations from the Federal Accounts Allocation Committee (FAAC) and each state’s efforts to boost internally generated revenue (IGR), according to data released by the Debt Management Office (DMO).
In the first half of 2024, the combined external debt for Nigeria’s states and the Federal Capital Territory (FCT) increased from $4.61 billion to $4.89 billion.
In naira terms, the debt burden shot up by 73.46%, moving from N4.15 trillion to N7.2 trillion, primarily due to the naira’s devaluation from N899.39 per dollar in December 2023 to N1,470.19 per dollar by June 2024.
Interestingly, domestic debt for the states and FCT dropped from N5.86 trillion to N4.27 trillion over the same period.
Rising Debt Driven by Persistent Borrowing Needs
Subnational governments have continued to rely heavily on borrowing to meet budgetary needs.
In 2023, the total debt stock of the 36 states grew by 38.1%, from N7.25 trillion in 2022 to N10.01 trillion. A report from BudgIT on the “State of States” indicates that this debt growth was influenced by a N606.12 billion increase in domestic debt, marking an average annual growth rate of 11.4%.
The exchange rate liberalization has intensified the states’ financial strain, especially regarding foreign debt repayment in naira terms.
Lagos State holds the highest foreign debt among the states, with $1.24 billion, making up 26.9% of Nigeria’s subnational foreign debt burden.
Dependency on Federal Allocations
An alarming trend highlighted by BudgIT shows that 32 states relied on FAAC allocations for at least 55% of their total revenue in 2023.
Furthermore, 14 states needed FAAC support for over 70% of their revenue, emphasizing the states’ heavy dependence on federally distributed revenue.
Transfers from the federation account comprised 62% of recurrent revenue for 34 states (excluding Lagos and Ogun), with 21 states relying on federal transfers for at least 80% of their recurrent budget.
In the 2023 fiscal year, states collectively boosted their revenue by 31.2%, from N6.6 trillion in 2022 to N8.66 trillion in 2023, largely driven by FAAC contributions. Lagos, once again, led in revenue generation, contributing N1.24 trillion, or 14.32% of the total revenue.
Mixed Results in Internally Generated Revenue
States made strides in generating internal revenue, with total IGR increasing by 20.33% to N2.19 trillion in 2023, up from N1.82 trillion in 2022.
However, this growth was uneven across the country. Six states achieved over 50% IGR growth, with Zamfara topping the list at 240.22%. Conversely, seven states saw a drop in IGR, with Jigawa experiencing the largest decline.
Lagos and Rivers were the only states able to fund their operational costs solely through IGR, boasting IGR-to-operating-cost ratios of 118.39% and 121.26%, respectively.
In contrast, states like Akwa Ibom, Bayelsa, and Taraba required federal aid and external assistance to cover their expenses.
Call for Sustainable Financial Practices
BudgIT urged Nigerian states to strengthen fiscal sustainability by enhancing revenue collection methods and reducing dependency on federal allocations. Key recommendations include digitalizing revenue collection, improving tax compliance among high-net-worth individuals, harmonizing tax policies, and encouraging public-private partnerships to boost economic resilience. BudgIT also advised states to think beyond oil production and leverage their unique comparative advantages.
The fiscal health of Nigeria’s states hinges on their capacity to mobilize internal revenue effectively.
This is not only critical for funding infrastructure but also for supporting essential services and maintaining economic stability in an era of fluctuating oil prices and global uncertainties.
