In the first half of 2024, 20 Nigerian state governments borrowed a staggering N446.29 billion, driven by declining revenues and mounting debt servicing costs. This borrowing trend underscores the severe financial challenges faced by state administrations.
Debt servicing has become a significant burden, consuming 80.7% of the Internally Generated Revenue (IGR) for 29 states in the first six months of the year. Despite a 40% increase in federal allocations, states have struggled to balance their books, with the additional funding insufficient to offset existing debt obligations.
The rise in debt servicing costs is attributed in part to the depreciation of the naira, which has increased the cost of servicing foreign debt. This economic strain has led to a heavy reliance on borrowing to cover budget deficits and operational expenses.
The 2023 fiscal reforms, including the removal of the petrol subsidy and currency adjustments, were expected to ease financial pressures on states. However, the anticipated benefits have not materialized as hoped, leading many states to incur additional debt.
States such as Cross River, Oyo, and Kogi have been prominent borrowers, with Cross River alone securing N121.22 billion in loans. Other states, including Katsina, Niger, and Gombe, have also borrowed substantial amounts to address their financial shortfalls.
The mounting debt crisis highlights the broader issue of high governance costs and inadequate fiscal management at the state level. Financial experts have criticized the lack of oversight and accountability in state administrations, arguing that excessive borrowing and mismanagement exacerbate the fiscal challenges.
Dr. Muda Yusuf of the Centre for Promotion of Private Enterprise noted that while borrowing for development can be beneficial, the current debt levels are unsustainable. He emphasized that the naira’s depreciation significantly impacts the cost of servicing foreign loans.
Professor Segun Ajibola from Babcock University also pointed to the high cost of governance as a major issue, criticizing the lack of effective oversight by state assemblies. He argued that the focus should be on improving governance efficiency and transparency to alleviate the financial pressures on states.
As states continue to grapple with financial instability, the need for reform in fiscal management and governance practices remains urgent. The substantial borrowing and high debt servicing costs pose significant challenges to long-term economic stability and development.
