Tuesday, June 23,2020 / 05:30 AM / by Proshare Content/ Header ImageCredit:  EcoGraphics

To understand the effects ofCOVID-19 on Nigeria's various states, a deep dive into their debt profiles tellsa compelling story of financial leverage going awry, especially when placedside-by-side with their federation account allocation (FAAC) and internallygenerated revenues (IGR). The spread of COVID-19 across states is graduallyturning budgetary challenges into fiscal nightmares as many states see theirwallets depleted as their debt service obligations outrun their revenues andleave recurrent expenditure thin and vulnerable. The gaps between recurrentfiscal revenues and expenditures will poke large holes in the state's 2020fiscal strategies. Each region has states that stick out like sore thumbs forhigh levels of foreign and local debt. In a pos-COVID-19 era, this could provedamaging to fiscal sustainability as FAAC revenues begin to slide downwardsfrom Q2 2020 through to Q1 2021 (see chart 34 above).

State Debt BungeeDive By Regions

Most states in Nigeriagenerate little revenue outside of their monthly FAAC allocation. The majorityof states depend almost exclusively on monthly allocations of federal revenues,which has declined significantly with the fall in global crude oil prices. Manystates have therefore resorted to borrowing to meet their salary obligations,often at exorbitant interest rates as high as 25%.

Some of Nigeria's richeststates are equally its most indebted, with the examples of Lagos state, Osunstate, Cross Rivers state, Kaduna state and Edo state. State governments,therefore, need to tremendously embrace a high level of transparency andaccountability, develop workable economic plans, take haircuts-especially onoverheads-expand their internally generated revenue (IGR) base, and cut down ondebt accumulation without a concrete repayment plan. They owe the most both interms of overall dollar amounts and as a percentage of internally generated,non-federally derived revenues. Lagos state had an external debt of $1.4bnwhich was more than ten times the size of the debt of other sub nationals inthe country. The top regions with the highest accumulation of external debt inDecember 2019 were the South-West and North-West region with an external debtof $1.87bn and $848.28bn respectively. While regions with the highest level ofdomestic debt as of December 2019 were South-South region and South-West regionwith a total accumulated domestic debt of N1.15trn and N971.15bn respectively (see Table 19).

Table 19: Externaland Domestic Debt by Regions as of December 2019

Table 19: Externaland Domestic Debt by Regions as of December 2019

South-West ExternalDebt and Domestic Debt

The total external debt forthe South-West region stood at $1.87bn in December 2019. The top three statesin the region with the highest amount of debt were Lagos State, Ekiti State andOgun State with an external debt of $1.4bn, $102.97bn and $100.61bnrespectively (see Chart 43).

Chart 43:South-West External Debt ($'m) as of December 2019

Source: DMO,Proshare Research

South-West total domestic debtstood at N971.15bn as of December 2019. The top three states with the highestamount of domestic debt were Lagos State, Ogun State and Osun state withdomestic debts of N444.23bn, N142.29bn, N138.65bn respectively (see Chart 44).

Chart 44:South-West Domestic Debt (N'bn) as of December 2019

Source: DMO,Proshare Research

North-West ExternalDebt and Domestic Debt

North-West external debt stoodat $848.28m as of December 2019. The top three states with the highest externaldebt were Kaduna State, Katsina State and Kano State with external debts of$554.78m, $79.09m and $69.11m respectively (see Chart 45).

Chart 45:North-West External Debt ($'m) as of December 2019

Source: DMO,Proshare Research

While its domestic debt stoodat N475.24bn as of December 2019. The top states in this region with thehighest domestic debts were Kano State, Kaduna State and Zamfara State withdebts of N107.75bn, N78.9bn and N70.84bn respectively (see Chart 46).

Chart 46:North-West Domestic Debt (N'bn) as at December 2019

Source: DMO,Proshare Research

South-SouthExternal Debt and Domestic Debt

South-South's cumulativeexternal debt as of December 2019 stood at $733.38m. Edo State's external debtof $275.93m was the highest in the region while Akwa Ibom recorded the lowestexternal debt of $47.98m as of December 2019 (see Chart 47).

Chart 47:South-South External Debt ($'m) as of December 2019

Source: DMO,Proshare Research

The South-South regionrecorded the highest domestic debt of N1.15trn as of December 2019. Riversstate recorded the highest domestic debt of N266.94bn while Edo state recordedthe lowest debt of N95.69bn as of December 2019 (see Chart 48).

Chart 48: South-SouthDomestic Debt (N'bn) as of December 2019

South-East ExternalDebt and Domestic Debt

South-East external debt stoodat $458.64m as of December 2019. Enugu State recorded the highest external debtof $124.01m while Imo State recorded the lowest external debt of $64.76m  as of December 2019 (see Chart 49).

Chart 49:South-East External Debt ($'m) as of December 2019

Source: DMO,Proshare Research

South-East domestic debt stoodat N374.89 as of December 2019. Imo state recorded the highest domestic debt ofN164.44bn while Anambra State recorded the lowest domestic debt of N33.92bn (see Chart 50)

Chart 50:South-East Domestic Debt (N'bn) as of December 2019

Source: DMO,Proshare Research

North-East External Debt and Domestic Debt

TheNorth-East recorded an accumulated external debt of $343.89m as of December2019. Bauchi state recorded the highest external debt of $133.9m while BornoState recorded the lowest debt of $17.11m in the region (see Chart 51).

Chart 51:North-East External Debt ($'m) as of December 2019

Source: DMO,Proshare Research

TheNorth-East recorded an accumulated domestic debt of N482.74bn as of December2019. Adamawa State recorded the highest domestic debt of  N102.41bn while Yobe State recorded thelowest domestic debt of N28.98bn in the region (seeChart 52).

Chart 52:North-East Domestic Debt (N'bn) as of December 2019

Source: DMO,Proshare Research

North-Central External Debt and Domestic Debt

North-Centralregion recorded the lowest external debt of $302.42m as of December 2019. NigerState recorded the highest external debt of $69.99m in the region while FCTrecorded the lowest external debt of $30.44m in the region (see Chart 53).

Chart 53:North-Central External Debt ($'m) as of December 2019

Source: DMO,Proshare Research

TheNorth Central's domestic debt was N653.54bn as of December 2019. Plateau State recordedthe highest domestic debt of N134.01bn while Nasarawa State recorded the lowestdomestic debt of N56.51bn in the region (see Chart 54).

Chart 54:North-Central Domestic Debt (N'bn) as of December 2019

Source: DMO,Proshare Research

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