FAAC to the Rescue of States


Friday, October 21, 2016 9:23am / FBNQuest Research

DMO data put the domestic debt of the 36 states and the FCT at N2.50trn at end-2015. This amounted to 2.7% of the year’s GDP: when we add the FGN’s domestic and external obligations (including the states’ foreign loans guaranteed by itself), we reach a burden of 14.3% of GDP for state and federal government debt.

The DMO does not clarify whether the total for the states includes their bank loans restructured last year into FGN bonds in the sum of N680bn. It does specify that these instruments are not included in its data for FGN domestic debt.

The total for states increased sharply from N1.66trn at end-2014. This rapid accumulation tells us that the banks were less demanding in their granting of loans to states than the FGN (over their foreign borrowings).

We can see from our chart that just one state (Delta) accounts for more than 10% of states’ total debt, and that the burden is fairly evenly shared.

The FGN has launched three debt relief programmes for states in the past 15 months, seeking to reverse the emergence of sizeable salary and pension arrears due to their employees.

The third of its programmes was a N90bn loan for the states, announced in June 2016 and backed by an unspecified private-sector credit.

The federal finance ministry announced that the loan would not be disbursed when the monthly distribution by the Federation Account Allocation Committee exceeded N500bn because the states would then be able to run their own programmes.

To end on a positive note, the payout has been above this threshold for two of the three past months.

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