Heavy Weight of State Government Debt

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Tuesday, August 11 2020 / 11:28 AM / by FBNQuest Research / Header Image Credit: AARP/Ecographics


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The domestic debt of state governments at end-March amounted to N4.11trn, equivalent to 2.9% of GDP and unchanged from three months previously. It increased by N840bn in 2015 alone, which saw the first of five debt relief packages launched by the FGN over two years. The annual rise in the burden has since slowed: the states are now subject to greater regulatory oversight and banks have generally lost their appetite to lend to states due to the weakness of the oil price and its impact on the monthly distributions by the Federation Account Allocation Committee (FAAC), on which most states depend.

                                                                                               

The five largest debtors at end-2019 were Lagos, three oil producers and Cross River. They made up 32.7% of the total, leaving the sizeable balance divided between 31 state governments and the Federal Capital Territory.

 

At end-2011 the five were the same states except that Bayelsa, another oil producer, was briefly the leading debtor.

 

As with external borrowings, Lagos State is the largest domestic debtor in terms of bank borrowings and bond issuance (see below). Its accounts for 2019 tell us that it is well placed to meet its obligations. We see total revenue of N645bn, in which internally generated revenue (N348bn) comfortably exceeded statutory allocations from the FAAC (N230bn). Net earnings of N366bn were translated into an overall surplus of N67bn after capital items, depreciation and public debt service (N63bn).

 

Domestic debt of state governments (N trn; end-year)

 

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Sources: Debt Management Office (DMO) FBNQuest Capital Research

     

This data series excludes the issuance of naira-denominated bonds, which currently amount to N390bn in total. Lagos alone accounts for N330bn and is the last state government to have come to the market (several times) since Cross River in May 2015. Coupon payments and principal repayments are deducted from the monthly distributions by the FAAC.


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