Nigerian states’ responsibilities to service their external debt have increased significantly; in the first four months of 2024, they climbed by 123% when compared to the same time in 2023.
The National Bureau of Statistics (NBS) Federal Account Allocation Committee (FAAC) data analysis indicates that the total amount paid for external debt service from January to April 2024 was N96.52 billion, a significant increase over the N43.31 billion paid during the same period the year prior.
The amount deducted for servicing external debt in 2023 was N120.01 billion, a 54% increase from N78 billion in 2022. Interestingly, 124% more money was spent on external debt servicing in the first four months of 2024 than was spent in total in 2022—80.4% of the money allocated for this purpose in 2023.
This sharp rise draws attention to the higher borrowing costs among states, which may affect revenue and capital budget allocations.
What the data indicates
According to the data, states’ monthly debt service costs have more than doubled, from about N9 billion to over N20 billion. This increase is probably the result of the depreciation of the naira.
Additionally, in 2023 the monthly debt service payments were generally constant; by 2024, however, they had become uncertain due to fluctuations in the foreign exchange market in Nigeria.
Nigerian states paid N9.88 billion in January 2024 for paying down their external debt, down from N13.67 billion in January 2023. Given this 27.7% decrease, some states might have fewer debt service commitments this month. Additionally, during the period covered by this study, the currency rate primarily fluctuated between N830/$1 and N1,000/$1, which was the lowest range. Given that the amount removed in January 2024 is the same as it was for most of 2023, it would seem that the exchange rate element was not yet felt in that month.
Payments for debt servicing increased dramatically to N24.53 billion by February 2024, up 148.2% from N9.88 billion in the same month the previous year. This sudden increase draws attention to the potential impact of currency depreciation on repayment costs. Such a jump suggests that state budgets are under more financial strain.
With N40.41 billion spent on debt servicing in March 2024, the greatest amount ever paid on debt servicing was N9.88 billion in March 2023, a 309.1% increase. Higher maturing debt obligations after a quarter may be the cause of this sharp increase.
Even while April 2024’s total was less than March’s peak of N21.70 billion, it was still 119.6% more than April 2023’s N9.88 billion. The drop from March might be the result of finished debt cycles, but the persistently high numbers show persistent financial difficulties.
Most affected states
Lagos State, Nigeria’s economic centre, continues to be the biggest payer of its country’s external debt, having spent N22.01 billion last year, a significant increase from N11.60 billion the year before, when its debt servicing requirements had increased by 90%.
The biggest increase, however, was in Cross River State, where external debt servicing increased by an astounding 302% to N5.33 billion from N1.33 billion.
Not to be outdone, Kaduna State’s debt servicing expenses increased by 132%. With a rise to N16.04 billion from N6.91 billion the year before, Kaduna State stands out.
Therefore, it is not shocking that Uba Sani, the governor of Kaduna State, recently bemoaned the enormous debt that his predecessor left behind. Sani claimed that the state now has insufficient funds to provide salaries. The governor stated that the massive debt load was severely depleting the state’s federal allocation, and he added that he was repaying nearly three times the amount that the Nasir El-Rufai administration had borrowed because of the increase in exchange rates.
In the meantime, the cost of servicing debt more than doubled for states like Bauchi and Ogun, highlighting the widespread effects of growing debt commitments in different areas. The expenditures of Bauchi State’s debt servicing increased by 88% between 2023 and 2024, from N2.32 billion to N4.36 billion. Ogun State announced a 196% rise in payments for servicing its external debt, going from N1.00 billion in 2023 to N2.96 billion in 2024.
This increase in debt highlights the need for responsible financial management to protect the state’s economic future and preserve its fiscal stability. These governments must strike a balance between meeting their financial responsibilities and making investments in infrastructure and vital services, given their considerable increases in debt payments.
