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FBNQuest: FG’s measures curb states’ debt stress

Analysts at FBNQuest have attributed the recent decline in the growth of state governments’ domestic debt to Federal Government’s measures aimed at curbing the surge in sub-national debt. In a note obtained by New Telegraph yesterday, the analysts pointed out that the Federal Government introduced the measures, given that “the repayment capacity of most states has shrunk in the past decade and that the monthly payout by the Federation Account Allocation Committee (FAAC) falls well short of states’ recurrent spending in aggregate.” According to the analysts, with the exception of Lagos, domestic borrowing for states has been on a downtrend in recent months. As the analysts put it, “the growth in the domestic debt of state governments has slowed to almost zero, amounting to just 0.4 per cent y/y at end-March.

In contrast, aggregate lending to the private sector from all sources (and not just the deposit money banks) is growing y/y at doubledigit levels. “Federal agencies are containing the rise of subnational debt for reasons of best practice.

They know that the repayment capacity of most states has shrunk in the past decade and that the monthly payout by the Federation Account Allocation Committee (FAAC) falls well short of states’ recurrent spending in aggregate (Good Morning Nigeria, July 22, 2021). “The first Buhari administration introduced controls on new borrowing and organised several debt relief initiatives including a swap of states’ bank borrowings for FGN long bonds.” Commenting specifically on the indebtedness of Lagos, the analysts said: “The most indebted state has the means to meet its debt obligations due to its ability to bank substantial internally generated revenue on top of the formulae-driven FAAC payouts because of the concentration of manufacturing and services sector companies within its jurisdiction.

 

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