Nigerian states spend 123% more on servicing external debt in four months 

According to an analysis of Federal Account Allocation Committee (FAAC) data from the National Bureau of Statistics (NBS), total external debt service payments for January to April 2024 reached N96.52 billion, a substantial rise from N43.31 billion in the corresponding period of the previous year. 

In 2023, external debt servicing costs amounted to N120.01 billion, reflecting a 54% increase from the N78 billion deducted in 2022. Notably, 80.4% of what was spent on servicing external debt in 2023 has already been expended in the first four months of 2024, which is 124% more than the total for 2022. 

This dramatic increase highlights the heightened borrowing costs among states, potentially impacting revenue and capital budget allocations. 

The data shows that states have moved from spending around N9 billion to over N20 billion monthly, which is more than doubled debt service cost likely due to the naira devaluation.

Also, the debt service payments have moved from a relatively stable amount monthly in 2023 to unpredictable amounts by 2024, reflecting the volatility in the Nigerian foreign exchange market. 

Most hit States 

This jump points to an expanding debt burden, emphasizing the importance of prudent financial management to safeguard the state’s economic prospects and maintain fiscal health. These states, with their notable increases in debt servicing, face the challenge of balancing their financial obligations with the need to invest in essential services and infrastructure.  

Naijaonpoint earlier reported that at least three Nigerian states Ekiti, Cross River, and Ogun have expressed concerns over the rising costs of foreign debt service due to severe foreign exchange volatility.

One of the states called for a possible suspension of the debt repayment for multilateral loans to ease their cash flow. 

The Commissioner of Finance of Ekiti State, Akintunde Oyebode, noted that the financial strain caused by rising exchange rates has escalated the costs of foreign debt repayments. Oyebode also noted that significant deductions from the statutory revenue for savings have drastically reduced state balances. 

Similarly, the Commissioner of Finance of Cross River State, Michael Odere, expressed fears about the state’s ability to fund capital projects due to reduced revenues.

He suggested a suspension of certain deductions, including those for multilateral loan repayments, especially when distributable revenue is low. 

Naijaonpoint recently reported that the naira value of the total external debt of Nigeria’s 36 states and Federal Capital Territory (FCT) increased by 23.76% from N3.350 trillion to N4.146 trillion between June 2023 and December 2023. 

Ekiti, Cross River, and Ogun are among the top 10 Nigerian states with the highest foreign debt stock as of December 31, 2023. There is no data from the Debt Management Office (DMO) on states’ external debt for the first quarter 2024. 

As states struggle with increasing debt servicing costs, they have been working to decrease their debt stock. In Q1 2024, states’ total domestic debt dropped by 31% from N5.86 trillion in Q4 2023 to N4.07 trillion and by 26% from N5.48 trillion in Q1 2023. 

As states struggle with increasing debt servicing costs, they have been working to decrease their debt stock. In Q1 2024, states’ total domestic debt dropped by 31% from N5.86 trillion in Q4 2023 to N4.07 trillion and by 26% from N5.48 trillion in Q1 2023. 

However, the marked increase in external debt servicing raises concerns about the fiscal health of Nigerian states. The need for prudent debt management and economic reforms has become more pressing, as rising debt costs could divert funds from critical sectors like health and education.