Coronanomics (17) - Sub-Nationals: Digging Deep, Wide and Hard

Tuesday, June 23, 2020 / 05:30 AM / by Proshare Content/ Header Image Credit:  EcoGraphics

 

To understand the effects of COVID-19 on Nigeria's various states, a deep dive into their debt profiles tells a compelling story of financial leverage going awry, especially when placed side-by-side with their federation account allocation (FAAC) and internally generated revenues (IGR). The spread of COVID-19 across states is gradually turning budgetary challenges into fiscal nightmares as many states see their wallets depleted as their debt service obligations outrun their revenues and leave recurrent expenditure thin and vulnerable. The gaps between recurrent fiscal revenues and expenditures will poke large holes in the state's 2020 fiscal strategies. Each region has states that stick out like sore thumbs for high levels of foreign and local debt. In a pos-COVID-19 era, this could prove damaging to fiscal sustainability as FAAC revenues begin to slide downwards from Q2 2020 through to Q1 2021 (see chart 34 above).

 

State Debt Bungee Dive By Regions

Most states in Nigeria generate little revenue outside of their monthly FAAC allocation. The majority of states depend almost exclusively on monthly allocations of federal revenues, which has declined significantly with the fall in global crude oil prices. Many states have therefore resorted to borrowing to meet their salary obligations, often at exorbitant interest rates as high as 25%.

 

Some of Nigeria's richest states are equally its most indebted, with the examples of Lagos state, Osun state, Cross Rivers state, Kaduna state and Edo state. State governments, therefore, need to tremendously embrace a high level of transparency and accountability, develop workable economic plans, take haircuts-especially on overheads-expand their internally generated revenue (IGR) base, and cut down on debt accumulation without a concrete repayment plan. They owe the most both in terms of overall dollar amounts and as a percentage of internally generated, non-federally derived revenues. Lagos state had an external debt of $1.4bn which was more than ten times the size of the debt of other sub nationals in the country. The top regions with the highest accumulation of external debt in December 2019 were the South-West and North-West region with an external debt of $1.87bn and $848.28bn respectively. While regions with the highest level of domestic debt as of December 2019 were South-South region and South-West region with a total accumulated domestic debt of  N1.15trn and N971.15bn respectively (see Table 19).

 

Table 19: External and Domestic Debt by Regions as of December 2019

 

 

Table 19: External and Domestic Debt by Regions as of December 2019

 

South-West External Debt and Domestic Debt

The total external debt for the South-West region stood at $1.87bn in December 2019. The top three states in the region with the highest amount of debt were Lagos State, Ekiti State and Ogun State with an external debt of $1.4bn, $102.97bn and $100.61bn respectively (see Chart 43).

Chart 43: South-West External Debt ($'m) as of December 2019

Source: DMO, Proshare Research

 

South-West total domestic debt stood at N971.15bn as of December 2019. The top three states with the highest amount of domestic debt were Lagos State, Ogun State and Osun state with domestic debts of N444.23bn, N142.29bn, N138.65bn respectively (see Chart 44).

 

Chart 44: South-West Domestic Debt (N'bn) as of December 2019

Source: DMO, Proshare Research

 

North-West External Debt and Domestic Debt

North-West external debt stood at $848.28m as of December 2019. The top three states with the highest external debt were Kaduna State, Katsina State and Kano State with external debts of $554.78m, $79.09m and $69.11m respectively (see Chart 45).

 

Chart 45: North-West External Debt ($'m) as of December 2019

Source: DMO, Proshare Research

 

While its domestic debt stood at N475.24bn as of December 2019. The top states in this region with the highest domestic debts were Kano State, Kaduna State and Zamfara State with debts of N107.75bn, N78.9bn and N70.84bn respectively (see Chart 46).

 

Chart 46: North-West Domestic Debt (N'bn) as at December 2019

Source: DMO, Proshare Research

 

South-South External Debt and Domestic Debt

South-South's cumulative external debt as of December 2019 stood at $733.38m. Edo State's external debt of $275.93m was the highest in the region while Akwa Ibom recorded the lowest external debt of $47.98m as of December 2019 (see Chart 47).

Chart 47: South-South External Debt ($'m) as of December 2019

Source: DMO, Proshare Research

 

The South-South region recorded the highest domestic debt of N1.15trn as of December 2019. Rivers state recorded the highest domestic debt of N266.94bn while Edo state recorded the lowest debt of N95.69bn as of December  2019 (see Chart 48).

 

Chart 48: South-South Domestic Debt (N'bn) as of December 2019

 

South-East External Debt and Domestic Debt

South-East external debt stood at $458.64m as of December 2019. Enugu State recorded the highest external debt of $124.01m while Imo State recorded the lowest external debt of $64.76m  as of December 2019 (see Chart 49).

 

Chart 49: South-East External Debt ($'m) as of December 2019

Source: DMO, Proshare Research

 

South-East domestic debt stood at N374.89 as of December 2019. Imo state recorded the highest domestic debt of N164.44bn while Anambra State recorded the lowest domestic debt of N33.92bn (see Chart 50)

 

Chart 50: South-East Domestic Debt (N'bn) as of December 2019

Source: DMO, Proshare Research

 

North-East External Debt and Domestic Debt

The North-East recorded an accumulated external debt of $343.89m as of December 2019. Bauchi state recorded the highest external debt of $133.9m while Borno State recorded the lowest debt of $17.11m in the region (see Chart 51).

Chart 51: North-East External Debt ($'m) as of December 2019

Source: DMO, Proshare Research

 

The North-East recorded an accumulated domestic debt of N482.74bn as of December 2019. Adamawa State recorded the highest domestic debt of  N102.41bn while Yobe State recorded the lowest domestic debt of N28.98bn in the region (see Chart 52).

Chart 52: North-East Domestic Debt (N'bn) as of December 2019

Source: DMO, Proshare Research

 

North-Central External Debt and Domestic Debt

North-Central region recorded the lowest external debt of $302.42m as of December 2019. Niger State recorded the highest external debt of $69.99m in the region while FCT recorded the lowest external debt of $30.44m in the region (see Chart 53).

Chart 53: North-Central External Debt ($'m) as of December 2019

Source: DMO, Proshare Research

 

The North Central's domestic debt was N653.54bn as of December 2019. Plateau State recorded the highest domestic debt of N134.01bn while Nasarawa State recorded the lowest domestic debt of N56.51bn in the region (see Chart 54).

Chart 54: North-Central Domestic Debt (N'bn) as of December 2019

Source: DMO, Proshare Research

 

Related Reports (PDF)

1.     Download the Full PDF Report - Coronanomics and the Nigerian Economy, June 06, 2020

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