Reluctance to Lend to State Governments


Monday, September 28, 2020  / 10:20 AM  /By FBNQuest Research  / Header Image Credit: FBNQuest 


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The total indebtedness of state governments at end-June amounted to US$15.09bn, equivalent to 10.5% of GDP. (We have converted the larger, naira element at the fx rate at the I&E window.) The domestic/external mix was 72/28 at end-June. The external borrowing was unchanged over 12 months because it is all guaranteed by the FGN, which has become concerned about the repayment capacity of most states. The domestic borrowing increased by just 5.6% over the same period, and is subject to tighter regulation by public agencies including the DMO and the Securities and Exchange Commission.


The five largest debtors at end-June were Lagos, three oil-producing states and Kaduna, which has a reforming administration and a governor highly regarded by Nigeria's official creditors. After Lagos, Kaduna has by far the highest external debt among states.


The average indebtedness of the remaining 31 states and the Federal Capital Territory at end-June was US$303m. The least indebted was Yobe (US$101m). 


As with external borrowings, Lagos State is the largest domestic debtor in terms of bank borrowings and bond issuance (see below). Its accounts for 2019 tell us that it is well placed to meet its obligations. We see total revenue of N645bn, in which internally generated revenue (N348bn) comfortably exceeded statutory allocations from the Federation Account Allocation Committee (FAAC) of N230bn. It managed to post an overall surplus of N67bn after capital items, depreciation and public debt service (N63bn).


Total debt stock of state, Jun 2020 (% shares)


Total US$15.09bnProshare Nigeria Pvt. Ltd.


Sources: Debt Management Office (DMO) FBNQuest Capital Research


This data series excludes the issuance of naira-denominated bonds, which currently amount to N378bn in total. Lagos alone accounts for N328bn and is the last state government to have come to the market (several times) since Cross River in May 2015. Coupon and principal repayments are deducted from the monthly distributions by the FAAC.


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