20 govs borrow fresh N446bn as revenues tumble

A recent report indicate that debt servicing costs incurred by 29 state governments consumed 80.7 percent of their Internally Generated Revenue during the first half of 2024, illustrating the significant financial strain these sub-national entities are currently experiencing.

This challenging situation compelled the governors to borrow a total of N446.29 billion within the same timeframe, despite a 40 percent increase in their statutory allocations from the Federation Account.

This data was obtained through an analysis of budget implementation reports available on state websites and Open Nigerian States, a repository supported by BudgIT.

The quarterly performance reports, issued within four weeks following the end of each quarter, reveal a critical issue in fiscal management.

The majority of state revenues, which could otherwise be directed towards essential public services and developmental projects, are instead being diverted to meet debt obligations.

Furthermore, the situation highlights the severe constraints faced by state governments in managing inherited debt burdens while attempting to address the pressing needs of their constituents.

With an increased statutory allocation of 40 percent from the central government, there were hopes that governors would be able to fulfill their statutory responsibilities more effectively.

In 2023, state governors received the highest Federal Accounts Allocation Committee (FAAC) allocations in seven years, a result of reforms following the removal of the petrol subsidy and currency adjustments.

Experts anticipated that this revenue increase would alleviate the states’ reliance on further borrowing; however, many are instead dedicating a substantial portion of their income to debt repayments while accruing additional loans.

Reports indicate that states such as Osun, Ondo, Kaduna, and Cross River will predominantly use their FAAC funds for debt servicing this year, with deficits of N10.94 billion, N27.72 billion, N15.83 billion, and N10.02 billion, respectively, resulting from debt servicing deductions.

As a large share of revenue is consumed by debt obligations, the ability of state governments to foster long-term economic stability and enhance the quality of life for their residents becomes increasingly compromised.

Earlier this year, Kaduna State Governor Uba Sani expressed frustration over the substantial debt burden inherited from previous administrations, which has hindered timely salary payments and increased borrowing during his administration’s first nine months.

Governor Sani reported an inherited debt totaling $587 million, N85 billion, and 115 contractual liabilities, stating, “Despite the significant debt burden, we remain committed to steering Kaduna State toward progress and sustainable development”.

“We have conducted a thorough assessment of our situation and are sharpening our focus accordingly.”

Earlier report claims that state governors are grappling with the challenge of stimulating their economies after inheriting approximately N2.1 trillion in domestic debts and $1.9 billion in external debts from their predecessors.

In the nine months following their assumption of office (July 2023 to March 2024), 22 states spent a combined N251.79 billion servicing debts incurred by prior administrations.

The situation also led the state governments of Ekiti, Cross River, and Ogun to propose a suspension of their $501 million foreign debt repayments, citing severe foreign exchange volatility.

Although FAAC rejected this request, it underscores the efforts of these states to mitigate the escalating debt service burdens, which officials claim have significantly impaired their ability to service existing debts.

Experts assert that high debt servicing costs severely limit investment in crucial areas such as infrastructure, education, and healthcare, which are essential for economic growth and social welfare.

In an another development, the Organized Private Sector has stated that Nigeria’s straight monthly decline in inflation rates contradicts the country’s existing economic realities.

On Monday, the National Bureau of Statistics (NBS) announced in its Consumer Price Index report that “In August 2024, the headline inflation rate further eased to 32.15 percent relative to the July 2024 headline inflation rate of 33.40 percent.” The report added,