Onerous Debt Burden For Most States

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Tuesday, December 17, 2019   /11:07 AM  / By FBNQuest Research / Header Image Credit: Business Tech

                                                                               

Having more than doubled in the three years to December 2017, we can see from today's chart that the aggregate domestic debt of all state governments stabilized in Q2 2019 and that that of Lagos marginally declined (due to a sizeable principal repayment). The appetite of the states for borrowing has not diminished: rather, two public agencies (the DMO and the Securities and Exchange Commission) and the federal finance ministry have tightened their supervisory role over new borrowing. Further, the states do not control their main source of income and have a large developmental backlog.

                                                                                                                  

Lagos remains the best-placed state. It saw net VAT receipts of N9.1bn in July (from June revenue in the federation account). No other state saw more than N2.0bn. Lagos has easily the largest pool of businesses to tax, and has developed a reputation for decent management and for the provision of services. It is the only state to have tapped the domestic bond market since 2015.

 

Its net payout of N11.4bn in July by the Federation Account Allocation Committee (FAAC) was surpassed by three states, all oil producers and therefore beneficiaries of the 13% derivation formula: Delta (N16.7bn), Akwa Ibom (N13.0bn) and Rivers (N11.7bn). They are the only three states with domestic debt above N200bn at end-June other than Lagos (N479bn), which should reassure their creditors.

 

In aggregate, the finances of the states have deteriorated. Their collection of internally generated revenue slowed from N765bn to N756bn in 2018. Their monthly inflows from FAAC still lag their outgoings on recurrent items.

 

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

 

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

 

Again in aggregate, six separate debt relief programmes from the FGN have merely eased the pain, and states will be expected to honour the new national minimum wage of N30,000 per month. The majority will struggle.


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Related to Debt

  1. Nigeria's Total Public Debt Stood At N25.70trn in Q2 2019 - NBS
  2. Nigeria's Total Public Debt Stood At N24.97trn in Q1 2019 - NBS
  3. DMO Releases Q1 2019 Public Debt Data - Marginal Increase of 2.3% in Total Public Debt Recorded
  4. DMO Releases Public Debt Data for December 2018
  5. Nigeria's Total Public Debt Stock Stood At $73.21bn or N22.43trn in Q3 2018
  6. DMO Releases Public Debt Data for June 2018; FGN Domestic Debt Declines
  7. Public Debt Vulnerable to Exchange Rate Movements
  8. DMO Publishes Q1 2018 Debt Data; Total Public Debt Stood At N22.71trn or US$74.28bn
  9. Total Public Debt as at December 31, 2017 Represents 18.20% of Nigeria's GDP for 2017 - DMO
  10. Nigerian Public Debt - A Comparative Analysis

 

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