New Telegraph

FBNQuest: States’ loan repayment capacity shrank in last decade

Federal agencies, such as Debt Management Office (DMO), are taking steps to curtail the growth of subnational debt because they realise that the repayment capacity of most  states has dropped significantly in the last 10 years, analysts at FBNQuest Research have said.

 

In a note titled, “Very heavy debt burdens for most States,” obtained by New Telegraph yesterday, the analysts stated: “The domestic debt stock was growing rapidly until the first Buhari’s administration, which introduced controls on new commitments and arranged a swap of States’ bank borrowings for FGN long bonds.

 

“The growth slowed to 1.9 per cent y/y in 2020.”

 

According to official data, Nigeria’s total public debt stock surged by 20.12per cent to N32.92 trillion as at Decem ber 2020 (from N27.40 trillion as at December 2019).

 

The increase was driven mainly by a 40.82per cent rise in external debt to N12.71 trillion (or $33.35 billion at N381.00/$1) as at December 2020 from N9.02 trillion (or $27.68 billion at N326.00/$1) in December 2019.

 

Commenting specifically on subnational debt, however, FBNQuest Research analysts stated that “the external debt of state governments is contracted on non-market terms with official creditors. It has to be approved in advance by federal agencies such as the DMO, and is heavily skewed towards those states favoured  for their policy, governance and operational management by the donor community.

“Lagos State naturally tops the list due to its capacity to generate revenue, and its efforts to provide transport and other services to its population. Kaduna and the other states featuring in our chart can be associated with current and/ or previous governors with developmental agendas.

 

“The remaining 31 states plus the federal capital territory were externally indebted at end-2020 to the tune of $2.14 billion, implying an average of less than $70 million per state. The total debt of the subnational rose by 4.6 per cent y/y from $4.56 billion at end-2019. “Their total external indebtedness of $4.77 billion was 93 per cent due to multilateral creditors (principally the World Bank and African Development Bank groups).

 

The Agence Francaise de developpement, the French state development bank, accounts for most of the bilateral lending of $310 million, disbursing to eleven different states.

 

“The domestic debt of the states is larger, amounting to the equivalent of $10.20 billion at end-2020 and more widely distributed. Lagos again tops the table but with a far smaller share of 12.2 per cent of the total.

 

The other states heading the league tend to be oil producers such as Delta and Rivers. Taking the external and domestic debt together, Lagos was the most indebted at end- 2020 ($2.65bn), followed by three in the $650 million-$750 million range (Delta, Kaduna and Rivers).

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