Nigerian states have seen a dramatic 123% increase in the cost of servicing external debt in the first four months of 2024. This sharp rise in debt servicing has serious implications for state budgets and their ability to fund essential services and infrastructure.
According to the Federal Account Allocation Committee (FAAC) data from the National Bureau of Statistics (NBS), Nigerian states spent N96.52 billion on external debt servicing from January to April 2024. This is a significant increase from N43.31 billion during the same period in 2023. The surge in debt servicing costs reflects higher borrowing expenses and the impact of currency depreciation.
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In 2023, states spent a total of N120.01 billion on external debt servicing, up 54% from N78 billion in 2022. By April 2024, states had already spent 80.4% of what they spent in the entire year of 2023. This trend indicates a worrying escalation in debt obligations, with states now spending more than double their monthly average from the previous year.
Monthly Breakdown of Debt Servicing Payments
In January 2024, states spent N9.88 billion on external debt servicing, down from N13.67 billion in January 2023. However, the following months saw a steep rise in costs:
- February 2024: Debt servicing payments jumped to N24.53 billion, a 148.2% increase from February 2023.
- March 2024: Payments soared to N40.41 billion, marking a 309.1% increase from March 2023.
- April 2024: Costs slightly decreased to N21.70 billion but still represented a 119.6% increase over April 2023.
Most Affected States
Lagos State, Nigeria’s economic hub, remains the largest contributor to external debt payments, with expenditures rising to N22.01 billion, a 90% increase from N11.60 billion the previous year. Cross River State experienced the most significant increase, with debt servicing costs soaring by 302% to N5.33 billion from N1.33 billion.
Kaduna State also faced a substantial increase, with costs rising by 132% to N16.04 billion from N6.91 billion. Governor Uba Sani of Kaduna lamented the heavy debt burden inherited from his predecessor, noting that the state is now struggling to pay salaries due to high debt repayments.
Bauchi and Ogun states also saw their debt servicing costs more than double. Bauchi’s costs rose by 88%, from N2.32 billion to N4.36 billion, while Ogun’s payments jumped by 196%, from N1.00 billion to N2.96 billion.
Calls for Relief and Suspension of Repayments
States such as Ekiti, Cross River, and Ogun have expressed concerns over the rising costs of foreign debt service due to foreign exchange volatility. Ekiti’s Commissioner of Finance, Akintunde Oyebode, highlighted the financial strain caused by rising exchange rates, which has escalated the costs of foreign debt repayments. He suggested the suspension of certain deductions, including those for multilateral loan repayments, to ease the financial burden on states.
Cross River’s Commissioner of Finance, Michael Odere, echoed similar concerns, emphasizing the difficulty in funding capital projects due to reduced revenues. He also called for a suspension of multilateral loan repayments, especially when distributable revenue is low.
Implications for Fiscal Health
The increase in external debt servicing costs raises concerns about the fiscal health of Nigerian states. The need for prudent debt management and economic reforms is more pressing than ever, as rising debt costs could divert funds from critical sectors like health and education. States must balance their financial obligations with the need to invest in essential services and infrastructure to ensure long-term economic stability.