The various State governments have witnessed a significant surge in their external debt servicing obligations, marking a 123% increase in the first four months of 2024 compared to the same period in 2023.
According to an analysis of Federal Account Allocation Committee (FAAC) data from the National Bureau of Statistics (NBS), total external debt service payments for January to April 2024 reached N96.52 billion, a substantial rise from N43.31 billion in the corresponding period of the previous year.
In 2023, external debt servicing costs amounted to N120.01 billion, reflecting a 54% increase from the N78 billion deducted in 2022. Notably, 80.4% of what was spent on servicing external debt in 2023 has already been expended in the first four months of 2024, which is 124% more than the total for 2022.
This dramatic increase highlights the heightened borrowing costs among states, potentially impacting revenue and capital budget allocations.
The data shows that States have moved from spending around N9 billion to over N20 billion monthly, which is more than doubled debt-service cost likely due to the naira devaluation.
Also, the debt-service payments have moved from a relatively stable amount monthly in 2023 to unpredictable amounts by 2024, reflecting the volatility in the Nigerian foreign exchange market.
In terms of ‘most-hit’ States, Lagos State, the economic hub of Nigeria, remains the largest contributor to external debt payments, with expenditures totalling N22.01 billion, a substantial rise from N11.60 billion the previous year, a 90% increase in its debt servicing obligations.
However, Cross-River State experienced the most significant increase, with a staggering 302% rise in external debt-servicing, increasing to N5.33 billion from N1.33 billion.
Following closely, Kaduna State saw a 132% increase in its debt-servicing costs. Kaduna State stands out, with an increase to N16.04 billion from N6.91 billion in the previous year.
Recall that Kaduna State governor, Uba Sani, recently lamented the huge debt inherited from his predecessor, Nasir el-Rufa’i, saying the State is now left with a few amounts, not enough to pay salaries.
The Governor noted that the huge debt burden was eating deep into the State’s federal allocation, adding that due to the rise in the exchange rate, he was paying back almost triple what was borrowed by the el-Rufa’i administration.
Meanwhile, States like Bauchi and Ogun saw their debt-servicing costs more than double, highlighting the broad impact of rising debt obligations across various regions. Bauchi State recorded an 88% increase in its debt servicing costs, rising from N2.32 billion in 2023 to N4.36 billion in 2024. Ogun State reported an increase of 196% in its external debt servicing payments, jumping from N1.00 billion in 2023 to N2.96 billion in 2024.
These States, with their notable increases in debt-servicing, face the challenge of balancing their financial obligations with the need to invest in essential services and infrastructure.
At least three Nigerian States: Ekiti, Cross-River and Ogun have expressed concerns over the rising costs of foreign debt-service due to severe foreign exchange volatility. One of the States called for a possible suspension of the debt repayment for multi-lateral loans to ease their cash flow.
It was recently reported that the naira value of the total external debt of Nigeria’s 36 States and Federal Capital Territory (FCT) increased by 23.76%, from N3.350 trillion to N4.146 trillion between June 2023 and December 2023. Ekiti, Cross River, and Ogun are among the top 10 Nigerian States with the highest foreign debt stock as of December 31, 2023. There is no data from the Debt Management Office (DMO) on States’ external debt for the first quarter 2024.
As the States struggle with increasing debt servicing costs, they have been working to decrease their debt stock. In Q1 2024, States’ total domestic debt dropped by 31%, from N5.86 trillion in Q4 2023 to N4.07 trillion, and by 26% from N5.48 trillion in Q1 2023.
The marked increase in external debt servicing raises concerns about the fiscal health of Nigerian States. The need for prudent debt management and economic reforms has become more pressing, as rising debt costs could divert funds from critical sectors like health and education.
