The quarterly review of the Federation Accounts Allocation Committee (FAAC) released last week by the Nigeria Extractive Industries Transparency Initiative (NEITI) showed that the Federal Government deducted from source, states’ allocations totaling N800 billion in 2024 to service part of Nigeria’s external debts and other contractual obligations. As of Q3 2024, Nigeria’s total public debt stock reached N142.3trillion ($88.89billion), a significant rise from N87.9trillion ($114.3billion) in Q3 2023, representing 61.89 percent increase in one year.
In a statement, NEITI said the deductions have strained the financial situation of many of the states, notwithstanding that disbursement from FAAC in recent months to the three tiers of government was high. This represents 43 percent high from the previous year, 2023. The increase in revenue to the three tiers of government was attributed to recent fiscal reforms, among them, the removal of petrol subsidy and exchange rate adjustments, all of which boosted oil revenue remittances.
A breakdown of the disbursements in 2024 showed that the Federal Government received N4.95trillion, state and local governments N5.81trillion, and N3.77trillion, respectively. However, the impact of the reforms and rise in revenues has not been felt in the living conditions of the people, due to increasing hunger and poverty across the country. However, the states have complained that the deductions from FAAC to service Nigeria’s external debts have seriously affected their capacity to invest in critical development efforts.
This is due to rising debt stock, debt servicing, naira depreciation, and foreign exchange volatility. All of these constraints have been projected to increase the country’s total debt profile to N187.7trillion by end of 2025, as against N134.67trillion recorded in 2024. Experts say that Nigeria’s accumulated debt has increased significantly because of Federal Government’s recent issuance of dollar-denominated domestic bonds of $900billion, the Nigerian Treasury Bills, and the recent return to the Eurobond market to raise $2.20billion.
Similarly, the sharp rise in debt stock has heightened concerns about Nigeria’s debt sustainability. We agree with NEITI that the continuation of the deductions will add more fiscal pressures on many states, especially those with low Internally Generated Revenue (IGR). Although Lagos State posts the highest IGR profile in the country, it also has the highest deductions of N164.7billion, representing over 20 per cent of the total deductions of the 36 states and the Federal Capital Territory (FCT) combined.
It is quickly followed by Kaduna State with N57.2billion, while Rivers and Bauchi states had N38.6billion and N37.2billion deductions from source. At the lower rung of the ladder in terms of revenue generation are Nasarawa, Yobe, Zamfara, Ekiti and Ebonyi states. The deductions from the 36 states and FCT represented 12.3 per cent of the total allocations in 2024. This raises concerns about the fiscal sustainability of the states, with domestic burdens also hanging on them. Besides, there is worry about the states’ debt-to-revenue ratios and their overall survival.
The Federal Government move to ensure that states pay their foreign debts is in order. However, the health of the economy of the states should be taken into account. For the economic survival of the states, we call for a seamless debt repayment formula that will not stifle the ability of the states to meet their financial obligations. Withdrawing a whopping N800billion from the states in one fell swoop will financially cripple them. This method of debt repayment is choking and not sustainable. Let it be reviewed.
Data from the Debt Management Office (DMO) showed that the economy has accumulated N63trillion ($43billion) as external debt. This accounted for 47 per cent of the total debt stock as of Q2, 2024. Though Nigeria’s current public debt-to-GDP ratio is still within the International Monetary Fund (IMF’s) 60 benchmark for emerging market countries, Nigeria’s weak revenue profile, naira depreciation and foreign exchange (FX) volatility could escalate debt levels and worsen the already strained economy
Overall, grappling with debt repayments calls for urgent need to mitigate looming economic risks and ensure sustained revenue growth without defaulting on debt repayment because the risks have far-reaching implications for the country. On the average, Nigeria spends about 95 per cent of its revenue on debt repayment annually, meaning that debt interest payment could take about 36 per cent of government’s projected revenue. The government should ensure stable naira and foreign exchange, crude oil production benchmark to prevent budget shortfalls. It must curb inflation, and diversify the economy beyond oil and gas. It is also imperative for the states to strengthen their IGR in line with NEITI’s Open Government Partnership commitments.