States in Nigeria spend 123% (N96.52 billion) more on servicing external debt in four months

Nigerian states have experienced a dramatic 123% increase in external debt servicing in the first four months of 2024, reaching N96.52 billion compared to N43.31 billion in 2023.
This surge reflects heightened borrowing costs amid currency depreciation, significantly impacting state budgets and fiscal health.
Lagos and Cross River states have seen substantial increases, with Cross River’s debt servicing cost rising by 302%, as states seek relief from rising debt repayment costs.
Nigerian states 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.

What the data is saying

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 January 2024, Nigerian states spent N9.88 billion on external debt servicing, a decrease from N13.67 billion in January 2023. This reduction of 27.7% suggests that some states may have less debt service obligations for this month. Also, the exchange rate traded majorly between N830/$1 and N1,000/$1, which was the lowest range within the period analyzed in this report. It appears that the exchange rate factor was yet to be felt in the first month of 2024, as the amount deducted is the same as the average monthly amount deducted for most of 2023.

By February 2024, debt servicing payments soared to N24.53 billion, a 148.2% increase from N9.88 billion in February 2023. This sharp rise highlights the possibility of currency depreciation impacting repayment costs. Such a leap indicates heightened financial pressures on state budgets.

March 2024 saw the highest expenditure on debt servicing at N40.41 billion, marking a 309.1% increase compared to March 2023’s N9.88 billion. This dramatic escalation could be attributed to higher maturing debt obligations at the end of a quarter.

In April 2024, while there was a reduction to N21.70 billion from the March peak, this amount still represented a 119.6% increase over April 2023’s N9.88 billion. The decrease from March may reflect completed debt cycles, yet the continued high levels highlight ongoing financial burdens.
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, climbing 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. It is, therefore, not surprising that Kaduna State Governor, Uba Sani, recently lamented the huge debt inherited from his predecessor. Sani said the state is now left with a few amounts, not enough to pay salary. 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 administration of Nasir El-Rufai.

Meanwhile, states like Bauchi and Ogun saw their debt servicing costs more than double, emphasizing 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.

This jump points to an expanding debt burden, emphasizing the importance of prudent financial management to safeguard the state’s economic prospects and maintain fiscal health. 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.

What you should know

Nairametrics earlier reported that 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 multilateral loans to ease their cash flow.

The Commissioner of Finance of Ekiti State, Akintunde Oyebode, noted that the financial strain caused by rising exchange rates has escalated the costs of foreign debt repayments. Oyebode also noted that significant deductions from the statutory revenue for savings have drastically reduced state balances.

Similarly, the Commissioner of Finance of Cross River State, Michael Odere, expressed fears about the state’s ability to fund capital projects due to reduced revenues.

He suggested a suspension of certain deductions, including those for multilateral loan repayments, especially when distributable revenue is low.

Nairametrics 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 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.

However, 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.