The 2024 State of States report by BudgIT, released on Tuesday, indicated that debt stock growth was partly fueled by a N606.12 billion rise in domestic debt, leading to an average annual growth rate of 11.4 percent as of December 31, 2023.
The BudgIT report states that the floating of the exchange rate intensified the financial pressure on states, substantially increasing their foreign loan repayment obligations when measured in naira. According to the report, Lagos State remained the highest indebted state in foreign debt, amounting to $1.24 billion, representing 26.9 percent of the country’s total.
In-depth review of the debt landscape showed a significant difference of N2.74 trillion in debt repayment obligations due to the exchange rate change from N899.39 per dollar on December 31, 2023, to N1,492.9 in June 2024. The decrease in value increased financial risk for many states, especially the eight states where over 50 percent of their total debt is in dollars.
Kaduna and Edo states had the highest ratio of foreign debt to total debt, with figures of 86.06 percent and 60.54 percent respectively. Other states in this category include Ondo, Bauchi, Lagos, Enugu, Ebonyi, and Anambra, which have ratios ranging from 50 percent to 59 percent.
The debt burden differed widely across the nation, as the average sub-national debt per capita reached N40, 469 in 2023.
Furthermore, to the existing debt stock, the states have total outstanding liabilities of N1.19 trillion comprising N408.69 billion in contractor arrears, N521.36 billion in pension and gratuity arrears, N79.64 billion in salary, and other employee claims, N4.36 billion in judgement debts and pending litigation, and N182.79 billion in other payables and liabilities.
The reports suggested that for the state to achieve debt sustainability, the state must limit their appetite for acquiring foreign loans due to exchange rate fluctuations and diminishing fiscal space, in order to lessen their vulnerability to unfavourable exchange rate.
“Domestic revenue mobilisation should be strengthened to reduce borrowing needs and budget deficits. States should implement fiscal reforms that broaden the tax base and formalise economic activities,” BudgIT advised.
BudgIT further suggested that “states should establish robust frameworks for debt transparency and accountability, ensuring that borrowed funds are directed towards high-impact projects with clear economic returns. Enhanced coordination between federal and state governments is essential for monitoring debt sustainability and providing guidance on borrowing limits to safeguard fiscal stability.”
