Debt of Nigeria’s 36 States Climbs to N11.4 Trillion Despite Revenue Generation Efforts

Despite increased internally generated revenue (IGR) and allocations from the Federation Account Allocation Committee (FAAC), the debt of Nigeria’s 36 states has reached N11.4 trillion. Explore the causes and implications of this growing financial burden.

As of June 30, 2024, the combined debts of Nigeria’s 36 states increased to N11.47 trillion, despite allocations from the Federal Accounts Allocation Committee (FAAC) and their respective internally generated revenues (IGR).

An examination of the public debt reports published by the Debt Management Office (DMO) indicated that there was a 14.57 percent increase compared to the N10.01 trillion recorded in December 2023.

The external debt for the states and the Federal Capital Territory increased from $4.61 billion to $4.89 billion during the review period.

In terms of naira, the debts grew by 73.46 percent, rising from N4.15 trillion to N7.2 trillion, due to the devaluation of the naira from N899.39 per dollar in December 2023 to N1,470.19 per dollar by June 2024.

However, domestic debt for the states and the Federal Capital Territory decreased from N5.86 trillion to N4.27 trillion.

In June 2024, the combined public debt of Nigeria’s states and the Federal Capital Territory (FCT) amounted to N134.3 trillion, showing a reduction from their 10.29 percent share in December 2023, despite an increase in nominal debt levels.

State debts soared by 38% to reach ₦10.01 trillion in one year.

Channels Television previously reported that in 2023, sub-national governments were still struggling with a heavy dependence on borrowing to fund their budgets. This reliance led to the total debt stock of the 36 states increasing by 38.1%, rising from N7.25 trillion in 2022 to N10.01 trillion.

As stated in BudgIT’s 2024 State of States report released on Tuesday, the rise in debt was partially fueled by an increase of N606.12 billion in domestic debt, leading to an average annual growth rate of 11.4% as of December 31st, 2023.

The total domestic debt amounted to N5.86 trillion.

The situation became more complex due to an increase in foreign debt, which rose by 4.1% from $4.43 billion in 2022 to $4.61 billion in 2023.

The report indicates that the liberalization of the exchange rate intensified financial pressure on states, substantially increasing their foreign loan repayment obligations when calculated in naira terms.

Lagos State continued to be the largest holder of foreign currency debt, representing 26.9% of the total external liabilities with an amount equivalent to $1.24 billion.

Report: 32 States Depended on FAAC Allocations for 55% of Their Revenue in 2023

The DMO’s report follows BudgIT’s findings, which stated that in 2023, the 32 states of the federation depended on FAAC for a minimum of 55 percent of their overall revenue.

According to the 2024 report published last week, this development highlights both the excessive dependence of state governments on federally distributed revenue and their susceptibility to crude oil-related shocks as well as other external disruptions.

The report additionally noted that in 14 states, at least 70% of their total revenue came from FAAC receipts. Moreover, transfers to these states from the federation account accounted for no less than 62% of the recurrent revenue in 34 states, excluding Lagos and Ogun. Additionally, federal transfers constituted a minimum of 80% of the recurrent revenue for 21 states.

In the 2023 fiscal year, the total revenue for all 36 states in Nigeria saw a significant increase of 31.2 percent, rising from N6.6 trillion in 2022 to N8.66 trillion.

This growth rate surpassed the previous year’s increase of 28.95 percent, highlighting a significant enhancement in fiscal performance.

In 2023, Lagos State contributed N1.24 trillion to the overall revenue, accounting for 14.32 percent of the total income generated by all 36 states combined.

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Gross FAAC increased by 33.19 percent, rising from N4.05 trillion in 2022 to N5.4 trillion in 2023, and accounted for 65 percent of the year-on-year growth in the combined revenue of all 36 states.

Out of the total, 32 states depended on FAAC receipts for a minimum of 55% of their overall revenue. Moreover, 14 states relied on these receipts for at least 70% of their entire income.

Moreover, transfers from the federation account made up at least 62 percent of the recurrent revenue for 34 states, excluding Lagos and Ogun. Additionally, federal transfers accounted for at least 80 percent of the recurrent revenue in 21 of these states.

The description provided highlights the state governments’ excessive dependence on federally distributed revenue and emphasizes their susceptibility to crude oil-related shocks and other external disturbances.

The report offers an in-depth analysis of the fiscal sustainability of states, assessing their ability to balance internally generated revenue with federal allocations.

IGRs Surge

Regarding Internally Generated Revenue (IGR) by the states, the report indicated an apparent improvement in domestic resource mobilization capacity among state governments in 2023. The IGR for all 36 states increased by 20.33 percent, reaching N2.19 trillion compared to N1.82 trillion collected in 2022.

The states experienced varied outcomes as growth was uneven: six states increased their IGR by over 50%, with Zamfara achieving the highest growth at 240.22%. In contrast, seven states saw a decline in IGR, with Jigawa experiencing the most significant drop among all 36 states.

Lagos State was the top contributor to total state revenue, contributing N1.24 trillion, which represents 14.32 percent of the overall revenue.

The report also emphasized that only Lagos and Rivers states generated sufficient internal revenue to cover their operating costs, with IGR-to-operating cost ratios of 118.39% for Lagos and 121.26% for Rivers, respectively.

Conversely, states like Akwa Ibom, Bayelsa, and Taraba needed more than five times their internally generated revenue to cover operating expenses, heavily depending on federal transfers and external assistance.

BudgIT suggested that the fiscal health and long-term sustainability of states greatly depend on their ability to generate internal revenues. This can be achieved by utilizing natural resources, technology, public-private partnerships, human capital development, and effective consequence management. These efforts should aim to fund essential infrastructure projects, invest in human capital development and social protection measures, pay the new minimum wage along with its associated adjustments,, as well as mend any issues within the existing social contract.

To be more precise, the states should focus on digitalizing revenue collection and phasing out cash transactions. They need to utilize tax intelligence to assess the tax liabilities of entities—especially high net-worth individuals—and ensure compliance. Additionally, they must harmonize various taxes, levies, and fees; fully implement a treasury single account; and enhance the ease of doing business.