Friday March 18, 2022 / 10:25 AM / by FBNQuest Research / Header Image Credit: FBNQuest Research
We see from the Debt Management Office's (DMO) latest quarterly data release that the total domestic debt for the 36 states of Nigeria and the FCT amounted to NGN4.2trn as at September '21, representing a modest rise of 1.9% q/q. In aggregate terms, the burden is not light, especially when viewed from the context of state governments' dwindling revenues from FAAC disbursements in recent months. In light of rising crude oil prices, the NNPC has lowered its remittance to the joint FAAC purse by deducting subsidy claims at source. Since most states rely on FAAC allocations for the majority of their revenue, this deduction has been a source of concern for them.
NBS revenue data for FY '20 highlights the reliance of most states on FAAC disbursements, showing that only four states - Lagos, Ogun, Rivers, and Kaduna - and the federal capital territory (FCT) generated over 45% of their revenues internally.
Based on the internally generated revenue (IGR) percentages, Lagos is the leader by a long shot, with IGR accounting for almost 78% of its FY '20 revenues. It is followed by the FCT (58%), Ogun (57%), Rivers (45%) and Kaduna (45%). Bayelsa, one of Nigeria's oil-rich states, ranks the worst on this measure, with an IGR to total revenue ratio of c.9%. Jigawa, Yobe and Adamawa are next at 13%, 14% and 15% respectively.
According to the DMOs data release, Lagos is the most indebted state, with a total debt balance of NGN532bn as at Q3 '21. If we add the NGN137bn bond issued by the state in Dec '21, its total debt stock increases to close to NGN670bn.
However, unlike most states, its debt burden is sustainable. Its FY '20 financial statements show that its public debt charges, which include internal and external loans, and leases, amounted to c.NGN57bn, implying an interest-expense to total revenue ratio of 9%. This is a very comfortable level, when we consider that the FG's debt-service to revenue ratio for the 11 months to Nov '21 was running at 76%.
Akwa-Ibom (NGN235bn), Rivers (NGN226bn), Delta (NGN207bn) and Ogun (NGN192bn) states are the next most indebted states in Nigeria. Akwa-Ibom and Delta states with IGR ratios of 17% and 24% are particularly vulnerable due to the unhealthily high proportion of FAAC revenues in their overall revenue mix.
Enabling legislation that allows state governments to participate in previously restricted parts of the economy must be passed. We commend the recent passage of the electricity reform bill, which allows states to generate, transmit and distribute electricity.