In a stark revelation that will send shockwaves through policy circles, Nigeria’s states and local governments (LGs) owed a combined ₦4.09 trillion to commercial banks, merchant banks and the Central Bank of Nigeria (CBN) as of 31 December 2024.
While the marginal reduction from ₦4.20 trillion a year earlier might suggest progress, the headline figure unravels a deeper malaise: persistent overborrowing, mounting interest obligations and an ever-growing dependence on the apex bank’s direct funding lines.
Commercial Banks Retreat as CBN Exposure Surges
The latest CBN Quarterly Statistical Bulletin shows commercial and merchant banks accounted for ₦2.41 trillion, or 58.9 per cent of the total subnational debt stock—a ₦233 billion drop year-on-year—hinting at tightening lending appetites in an inflation-weary economy.
Conversely, exposure to the apex bank rose from ₦1.56 trillion to ₦1.68 trillion, representing 41.0 per cent of subnational claims, underscoring the growing recourse by state actors to easier, but potentially costlier, CBN financing.
‘Borrowing might seem like an easy way to run operations, but it is not necessarily the right approach,’ warns Teslim Shitta-Bey, Director and Chief Economist at Proshare Nigeria, admonishing governments to manage their balance sheets with the rigour of corporate entities.
Fluctuating Borrowing Patterns in 2024
An analysis of monthly claims reveals a roller-coaster trajectory. After a January peak of ₦4.29 trillion—a 20.0 per cent surge from the previous year’s January—claims dipped sharply to ₦3.52 trillion in April, the only month to record a year-on-year contraction (–5.7 per cent).
This April trough coincided with commercial banks cutting back lending, whereas the CBN’s share ballooned to 45.2 per cent of total claims, signalling a flight to safety by subnational borrowers amid tightening private credit conditions.
Following the April lull, subnational claims rebounded robustly—up 14.7 per cent to ₦4.04 trillion in May and cresting again at ₦4.29 trillion in June—before stabilising above the ₦4 trillion mark through to December.
Debt Stock in Context: Domestic vs. External Pressures
For a fuller picture, one must juxtapose this bank-centric debt profile with the broader domestic and external obligations of state governments.
As of June 2024, the combined domestic debt of Nigeria’s 36 states and the Federal Capital Territory stood at ₦4.27 trillion—a 27.1 per cent drop from December 2023—while external debt swelled to ₦7.2 trillion, driven largely by naira devaluation that pushed dollar-denominated liabilities up by 73.5 per cent year-on-year.
This divergence underscores the vulnerability of subnational budgets to forex shockwaves and international capital cost hikes.
Fiscal Fragility Amid Tepid Economic Growth
All of this debt must be serviced against the backdrop of a modestly recovering national economy. According to the National Bureau of Statistics, Nigeria’s real GDP grew by 3.4 per cent in 2024—up from 2.74 per cent in 2023—driven chiefly by a 5.37 per cent expansion in the services sector.
Yet, with inflation persistently above 20 per cent and average borrowing costs elevated by CBN’s aggressive monetary tightening, subnational budgets find little breathing room.
Compounding matters, the International Monetary Fund forecasts Nigeria will slip to the fourth-largest economy in Africa in 2024, behind South Africa, Egypt and Algeria, as dollar-based GDP contracts from US\$375 billion to US\$253 billion amid sustained naira weakness.
Expert Alarm Bells and Prescriptive Roadmaps
Teslim Shitta-Bey argues that governments should pivot towards longer-term, quasi-equity debt instruments and scale up state revenue bonds—originally designed for self-financing infrastructure—rather than defaulting to general-obligation loans.
He calls for a comprehensive register of national assets, citing the underutilised National Stadium as a case study for monetisation opportunities.
Adewale Abimbola, an economist based in Lagos, paints a sobering picture of states’ economic non-viability and over-reliance on monthly Federation Account disbursements.
He urges subnational governments to map their competitive advantages—be it agriculture in Kaduna or tech hubs in Lagos—and package these strengths to attract local and foreign investment.
‘State governors know what to do. What’s lacking is the political will to pursue these reforms,’ he laments, warning that election-mode politics for 2027 is already supplanting governance priorities.
Macroeconomic analyst Dayo Adenubi spotlights the imperative of boosting internally generated revenue (IGR) through higher consumption taxes and stricter enforcement of property and transport levies.
He stresses that improving the ease of doing business will catalyse corporate growth and job creation, lifting Pay-As-You-Earn tax remittances—critical stabilisers for state coffers.
A Fork in the Road: Reform or Rebellion?
At ₦4.09 trillion of bank and CBN claims, subnational debt may have crept down marginally, but the broader debt burden—when measured against GDP, rising interest rates and constrained revenue inflows—paints an alarming trajectory.
With most states still failing to generate sufficient IGR to cover operating expenses, as BudgIT data has repeatedly shown, the prospect of bailouts or even debt distress looms large.
As Nigeria grapples with cost-of-living pressures and contested reforms, the onus is on state executives to eschew short-term borrowing binges and embrace durable fiscal strategies. Failure to do so risks not just credit downgrades, but a democratic crisis of service delivery—and ultimately, social unrest.
Atlantic Post writer Taiwo Adebowale contributed to this report.
