No Respite for State Government Finances


Thursday, June 11, 2020 / 10:26 AM / By FBNQuest Research / Header Image Credit: AllAfrica


From our chart today we can see that the growth of the states' domestic debt stock has started to slow. The increase in 2019 was just N260bn, compared with the previous year's N500bn. (The stock does not include naira-denominated bond issuance.) The states would have liked to have borrowed more, we assume, but their finances are subject to greater supervision by the federal finance ministry, the DMO and the Securities and Exchange Commission. They benefited from six separate measures of debt relief in the first term of the Buhari administration.

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The share of Lagos State amounted to 10.8%, representing N440bn. Its share of states' external borrowing at end-2019 was 30.6%, representing US$1.40bn. The most indebted state by some distance in both measures, Lagos is the best placed to meet its debt obligations by virtue of its successful harvesting of internally generated revenue (IGR).


In July 2019 Lagos received N11.4bn net from the Federation Account Allocation Committee (FAAC) after payments of N930m on external debt, N2.0bn on domestic debt and another N1.0bn deduction from its share of the VAT Pool. The data are lifted from the latest report from the office of the accountant-general of the federation.


Three states received a higher net payout than Lagos. All three (Akwa Ibom, Delta and Rivers) are oil producing beneficiaries of the 13% derivation formula.


Domestic debt stock of states (N trn; end-period)

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Sources: Debt Management Office (DMO); FBNQuest Capital Research



The states are set to see a sharp decline in their monthly distribution from FAAC when we recall the crashing oil price in March and April. (Nigerian crude is generally sold three months forward.) One state governor has suggested that the payout for the three tiers of government in July (from June's revenue in the federation account) may fall short of N200bn. The average over the last 12 months has been N693bn.

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