Total debt stock of 36 states grew by 38.1% to N10trn in 2023

…as total annual revenue hit N8.66trn

The thirty-six states of the federation in the year 2023 accumulated a total debt stock of N10 trillion, a 38.1 per cent increase from N7.25 trillion recorded in 2022. This is according to a report issued by BudgIT.

BudgIT, a prime civic-tech organisation leading the advocacy for fiscal transparency and accountability in Nigeria, in its 2024 edition of its annual State of States Report, noted that the growth in debt profile was partly driven by a N606.12bn increase in domestic debt, resulting in an average year-on-year growth rate of 11.4%.

“By December 31, 2023, the total domestic debt stood at N5.86tn. The situation was further complicated by rising foreign debt, which increased by 4.1%, from $4.43bn in 2022 to $4.61bn in 2023. The liberalisation of the exchange rate exacerbated the financial strain on states, significantly raising their foreign loan repayment obligations in Naira terms,” the organisation noted in a statement issued on Tuesday.

The report showed that Lagos State remained the most indebted in foreign currency, accounting for 26.9 per cent of the total foreign debt, equivalent to $1.24bn.

Further analysis of the debt landscape revealed a considerable variance of N2.74trillion in debt repayment obligations when comparing the exchange rate shift from N899.39 per dollar as of December 31, 2023, to the new rate of N1,492.9 as of June 2024.

The devaluation exposed many states to heightened financial risk, particularly the eight states where more than 50% of the total debt is dollar-denominated. Kaduna and Edo had the highest foreign debt-to-total debt ratios, at 86.06% and 60.54%, respectively. The other states in this group—Ondo, Bauchi, Lagos, Enugu, Ebonyi, and Anambra—had ratios ranging from 50% to 59%.

The debt burden also varied significantly across the country, with the average subnational debt per capita reaching N40,469 in 2023. Twelve states exceeded this benchmark, with Lagos having the highest debt per capita at N138,034.

In addition to the existing debt stock, the states have exiting liabilities totalling N1.19trillion: N408.69billion is owed in contractor arrears, N521.36billion is owed in pension and gratuity arrears, N79.64billion is owed in salary and other staff claims, N4.36bn is owed in judgment debt and other pending litigation, and other payables and liabilities amount to N182.79bn.

“The fiscal viability and long-term sustainability of states heavily depend on their capacity to mobilise revenues internally by effectively leveraging their natural resource endowments, technology, public-private partnerships, human capital, and effective consequence management.

“This capacity is crucial for financing essential infrastructure, investing in human capital development and social protection, meeting the new minimum wage and its consequential adjustments, and repairing the fractured social contract.

“To achieve debt sustainability, states must also curb their reliance on foreign loans, especially in light of exchange rate volatility and shrinking fiscal space, to minimise exposure to unfavourable exchange rates.

Additionally, states should establish robust frameworks for debt transparency and accountability ensuring that borrowed funds are allocated to high-impact projects with clear economic returns,” said Iniobong Usen, Head of Research and Policy Advisory, BudgIT.

Also, in the 2023 fiscal year, the combined revenue of all 36 states in Nigeria increased significantly by 31.2% from N6.6 trillion in 2022 to N8.66 trillion.

Of the total revenue generated in 2023, Lagos state contributed N1.24 trillion, representing 14.32% of the cumulative revenue of the 36 States.

Gross FAAC allocation grew by 33.19% from N4.05 trillion in 2022 to N5.4 trillion in 2023, contributing to 65% of the year-on-year growth of the combined revenue of the 36 states. This increase indicates the additional revenue accrued to states.

Also, 32 states relied on FAAC receipts for at least 55% of their total revenue, while 14 states relied on FAAC receipts for at least 70% of their total revenue.

Furthermore, transfers to states from the federation account comprised at least 62% of the recurrent revenue of 34 states, except Lagos and Ogun, while 21 states relied on federal transfers for at least 80% of their recurrent revenue.

“Several other states, including Ogun, Anambra, Cross River, Kwara, Kaduna, and Edo, managed to generate IGR sufficient to cover at least 50% of their operating costs, with the rest relying on federal transfers. In contrast, states such as Akwa Ibom, Imo, Taraba, Yobe, Bayelsa, and Jigawa required over five times their IGR to meet operating expenses, highlighting significant dependence on FAAC revenues and aid and grants.

“Of note is that all 36 states managed to raise enough revenue—comprising IGR, federal allocations, aid, and grants—to fully cover their recurrent expenditures. This indicates that no state needed to borrow to fund any portion of its recurrent spending,” the statement issued by the organisation read.