Sub-national governments in Nigeria are facing a severe financial crisis, with total debts soaring by 38.1% in 2023, escalating from ₦7.25 trillion in 2022 to ₦10.01 trillion.
This alarming trend is highlighted in BudgIT’s 2024 State of States report, released on Tuesday.
The report reveals that domestic debt has risen significantly, contributing ₦606.12 billion to the total debt stock, which now stands at ₦5.86 trillion.
The average year-on-year growth rate of domestic debt reached 11.4%. In contrast, foreign debt also increased by 4.1%, growing from $4.43 billion in 2022 to $4.61 billion in 2023.
According to the report, the liberalisation of the exchange rate has intensified financial pressures on states, drastically increasing their foreign loan repayment obligations in naira.
Lagos State remains the most indebted, accounting for 26.9% of the total foreign debt, equivalent to $1.24 billion.
A stark analysis indicates that the exchange rate shift from N899.39 to N1,492.9 per dollar between December 2023 and June 2024 has exposed states to a significant debt repayment obligation variance of N2.74 trillion. Kaduna and Edo states lead in foreign debt ratios, with 86.06% and 60.54% of their total debts in foreign currency, respectively.
The report also points to existing liabilities totalling ₦1.19 trillion, including contractor arrears and pension debts.
“To achieve debt sustainability, states must curtail their appetite for foreign loans amid exchange rate volatility,” BudgIT advised, stressing the need for enhanced domestic revenue mobilisation and fiscal reforms.
The organisation urged states to focus on high-impact projects and establish frameworks for debt transparency to ensure fiscal stability.
