States’ finances under heavy pressure

The external debt of the state governments and the FCT amounted to US$4.12bn at end-December and, being necessarily guaranteed by the FGN, is included in the latter’s total obligations of US$18.91bn. The total increased by US$550m over 12 months. Lagos is comfortably the largest debtor (see chart), which is to be expected for the state with the highest internally generated revenue (IGR) and best credit rating. Anybody unfamiliar with the state’s fiscal and investment credentials has only to refer to a positive piece this week in the UK’s Financial Times.

  • The entire stock of debt in question is concessional, and indeed multilateral with the exception of loans totaling US$224m from the agence française de développement (AFD, the French state development bank).
  • The decline in monthly distributions by the FAAC over three years has exposed the fiscal weaknesses of the vast majority of the 36 states. The reason, of course, has been the fall in oil revenues for distribution. The FGN, anxious to stem rising arrears in salary and pension payments by the states, has responded with five debt relief packages for the states since mid-2015.
  • The domestic bank borrowings of the states reached N3.35trn in 2017. These are not guaranteed by the FGN although the states benefited from its N575bn restructuring programme to convert their bank borrowings into 20-year federal bonds. Other than Lagos three times, there have been no new bond issues by states since May 2015.

Sources: Debt Management Office (DMO); FBNQuest Capital Research


  • Provisional data from the National Bureau of Statistics point to a welcome 12% increase in states’ IGR last year, to N931bn. All but five states were able to boost their receipts in 2017. The data show that Lagos again topped the list comfortably, collecting N334bn in the year.

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