The financial health of the state governments, Lagos and one or two others excepted, can be measured by the monthly distributions by the Federation Account Allocation Committee (FAAC) to the three tiers of government. Those aggregate payouts have now declined for five successive months, to N387bn in December. For eight months this year, they have fallen below N500bn: this seems an important health indicator for the FGN since loans within its N90bn package of 9% credits for states are not available for disbursement when the distribution exceeds it.
The loans were the third FGN initiative this year to ease pressure on state government finances, unblock salary and pension arrears, and give a boost to household consumption.
A fourth emerged at the start of this month. This is the return to the states of excessive external debt service deducted as a first-line charge from their FAAC payouts. The president has authorised the refund of N552bn, subject to verification, to the states in stages: a first refund of N153bn has been released this month, subject to a ceiling of N14.5bn for any single state.
We cannot say which states are eligible since the refunds apply to the Paris and London Club debt which was cancelled more than ten years ago. Our chart shows their current external debt of US$3.65bn as at end-June. All states have some debts and the creditors are all multilateral other than one Paris Club lender, France’s Agence française de développement, which has combined exposure of US$150m.
Sources: Debt Management Office (DMO); FBNQuest Research
Lagos and the few other exceptions have a track record in collecting substantial internally generated revenue, which lessens their dependence on the FAAC distribution. Several other state governments are following suit.