May 05, 2020 /09:19 AM / By FBNQuest Research / Header
Image Credit: FBNQuest
The aggregate external debt of state governments has increased modestly from US$4.12bn at end-2017 to US$4.23bn in 2018 and US$4.56bn in 2019. Because these obligations are guaranteed by the FGN, they are included in the figure for its total external debt of US$27.68bn. The modest rise in the burden reflects the caution of lenders (the donor community in this case). The finances of the states were hit hard by the oil price slide of close to three years that started in Q4 2014, and have now been hit again by the recent crashing in the price. They are also expected to be honouring the new minimum wage.
Mineral (oil) revenue is the largest element in the monthly distribution from the Federation Account Allocation Committee. In June it is likely to be particularly low (Good Morning Nigeria, 27 April 2020). The worst for the states is still to come since Nigerian crude is generally sold three months forwards.
Donors have their favoured states on the basis of their developmental agenda: Lagos of course but Kaduna's debts have risen strongly in the past six months. Just four states account for more than half the total debt burden.
The states' borrowing is entirely concessional, and from multilaterals other than US$270m provided by bilateral partners. The French state development bank, the agence francaise de developpement, has lent a total of US$230m. Eleven states have benefited from its soft loans, led by Lagos (US$130m).
External debt of state governments, Dec 2019 (% shares)
Sources: Debt Management Office (DMO): FBNQuest Capital Research
Because this borrowing is guaranteed by the FGN, we think that it is covered by the G20 initiative on debt relief for low-income countries. Bilateral debt service due before end-2020 is to be frozen. The total due this calendar year is US$180m for Nigeria, which seems to qualify under this initiative. It is not clear that the FGN will apply for the relief, given the talk of seeking comparable treatment from private creditors.
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