Despite significant increase in the revenue allocated to the states by the federal government, it is unfortunate that their indebtedness is spiraling out of control. According to the latest analysis of the states’ debts by the Debt Management Office (DMO), in the first six months after taking office on May 29, 2023, 13 new state governors collectively borrowed N226.8billion from domestic and external financial creditors. Also, 16 state governors increased their debts by N509.95billion and $28.5million, equivalent of N265.37billion based on exchange rate of N889/$. States’ debts are classified into domestic borrowings from local financial lenders and external borrowings from international creditors like the World Bank, the International Monetary Fund (IMF) and other foreign financial institutions.
The domestic and external debts published by the DMO covered from June 30 to December 30, 2023. According to it, total domestic borrowings from Benue, Cross River, Katsina, Niger, Plateau, Rivers, Zamfara and the Federal Capital Territory (FCT) during the period under review stood at N115.57billion. States, which borrowed from external sources, included Ebonyi, Kaduna, Kano, Niger, Plateau, Sokoto, Taraba and Zamfara. Their combined borrowings stood at $125 million or N111.24billion. Cross River took the highest loan of N16.2billion from domestic financiers and $57.95 million from foreign financial creditors between June and December, 2023. Katsina and Niger states followed with N36billion and N17.85billion, respectively, Plateau (N16.32billion) and Rivers (N7.07billion). On external borrowings, Ebonyi state came top with $37.54millio and Kaduna came second with $17.69million.
Recently, Governor Uba Sani of Kaduna State recently lamented that his predecessor left debts amounting $587 million, N85billion and others. Latest report from the Nigeria Extractive Industries Transparency Initiative (NEITI) showed that the amount shared by the three tiers of government increased by N1.93trillion in recent months due mainly to the removal of fuel subsidy and rising oil prices. These have led to 40 per cent boost in federal revenue. A breakdown of monthly FAAC’s allocation in 2023 showed that states and local government councils received the highest allocations of N627.73billion in September, followed by N610.5billion in December. Also, in August, they received N555.75billion, in November, N514billion, and N497.92billion in October 2023. Yet most states are highly indebted.
While borrowing for sustainable projects can be justified, it is sad to borrow for consumption or worthless projects. It is likely some of these loans have been mismanaged. We decry the seeming financial recklessness in some of the states. With the exception of one or two states, the rest cannot survive without the monthly handout from Abuja. The states should think inwards and generate enough revenue for their needs. Depending on Abuja for sustenance is not the way to go. Relying on binge borrowing is never the solution, either. Often, their borrowing pattern exceeds the recommended 3 per cent contained in the Fiscal Responsibility Act 2007. Perhaps it is about time to amend the Act to enable close monitoring of loans taken by the sub-national governments.
President Bola Tinubu has vowed to curb excessive borrowings by states. He should keep his promise. Today, The nation’s debt has reached an all-time high of N97.3 trillion, with N10trillion for debt servicing. This may have prompted Peter Obi, the Presidential candidate of the Labour Party (LP) in the last election to caution against excessive borrowing. There is urgent need for prudent management of the nation’s loans. For example, at the end of the second quarter(Q2) 2023, the nation’s debt was N86.9trillion, and between the Q3 and Q4 2023, it increased by N19trillion, excluding the N20trillion Ways and Means advances obtained from the CBN by the Buhari administration.
The reliance on borrowing by federal and state governments can harm the economy. It is also not sustainable. Regardless that the nation’s debt profile to the Gross Domestic Product (GDP) is still within acceptable international threshold, federal and state governments should curb binge borrowing. Let states grow their Internally Generated Revenue (IGR) and diversify their economies. The lawmakers should check excessive borrowings. The nation’s scarce resources should be prudently managed by charting a new course for the economy and move it from the present consumption to production. The states should make more investments in the development of their agriculture, which can create jobs and earn them enormous foreign revenue.