Data released by the Debt Management Office (DMO) reveals the total domestic debt stock of the 36 states and the Federal Capital Territory (FCT) reached N5.862 trillion by December 31, 2023. This marks a significant increase from the N5.337 trillion recorded in 2022.
Over the span of December 2022 to December 2023, the domestic debt of the 36 states and the FCT saw a notable surge of approximately N525 billion. This translates to a considerable uptick of 9.83% within the one-year timeframe.
The top 10 states with the highest domestic debt stock are;
10. Bauchi– Bauchi occupies the tenth position. Its domestic debt rose from N143.63 billion in 2022 to N160.80 billion by December 2023, reflecting an increase of N17.17 billion over the course of a year.
9. Plateau State– Plateau State, ranking ninth, witnessed a substantial increase in its domestic debt from N149.01 billion in December 2022 to N173.93 billion by the end of 2023, marking a notable rise of N29.91 billion.
8. Benue State– securing the eighth spot, Benu state experienced a noteworthy surge in its domestic debt in 2023, climbing by N45.88 billion to reach N187.18 billion, compared to its 2022 figure of N141.29 billion.
7. Akwa-Ibom– Among the top ten states, Akwa-Ibom stands out as the only one that reduced its total domestic debt stock in 2023. The state’s domestic debt decreased from N219.26 billion in December 2022 to N190.47 billion by the end of 2023, marking a reduction of N28.78 billion.
6. Imo– Ranking sixth, Imo state saw its domestic debt increase to N217.11 billion in 2023, up from N204.22 billion recorded in 2022, reflecting a rise of N12.88 billion.
5. Cross River state– This State witnessed an increase in its domestic debt from N197.21 billion in 2022 to N220.20 billion by the end of 2023, marking a rise of N22.99 billion.
4. Rivers State– Rivers State’s total domestic debt reached N232.57 billion in 2023, up from N225.50 billion in 2022. Notably, the debt stock figure for Rivers State pertained to March 31, 2023, as the state had not submitted its debt report for December 31, 2023.
3. Ogun State– This state secured the third position among the states with the highest domestic debt, recording a total stock of N278.67 billion by December 2023. This reflects an increase of N8.22 billion from the N270.45 billion recorded at the end of 2022.
2. Delta State– Delta State ranked second in terms of domestic debt, with a total of N373.40 billion in 2023, up by N69.16 billion from the N304.24 billion recorded in 2022. Notably, Delta State experienced the second-highest increase in domestic debt in 2023.
1. Lagos State– Leading the pack is Lagos State, with its domestic debt soaring from N807.20 billion at the end of 2022 to N1.048 trillion in 2023. This represents a substantial increase of N241.49 billion over the 12-month period.
It's not advisable for Nigerian states to rely heavily on foreign debt for several reasons, which I'll explain in detail:
1. Currency Risk: Foreign debt exposes states to currency risk, especially if they borrow in a foreign currency like the US dollar. Fluctuations in exchange rates can increase the cost of servicing the debt, as the local currency may depreciate against the foreign currency in which the debt is denominated. This can strain state finances and lead to budgetary challenges.
2. Interest Payments: Borrowing from foreign sources often comes with higher interest rates compared to domestic borrowing. States may find themselves burdened with substantial interest payments, diverting funds away from essential public services such as healthcare, education, and infrastructure development.
3. Debt Sustainability: Excessive foreign borrowing can lead to unsustainable levels of debt, posing risks to the overall economy. If states accumulate too much debt, they may struggle to repay it, leading to default or the need for costly bailouts. This can undermine investor confidence, trigger economic instability, and hinder long-term growth prospects.
4. Dependency on External Financiers: Relying heavily on foreign debt makes states vulnerable to the decisions and conditions imposed by external financiers, such as international financial institutions or foreign governments. These lenders may impose stringent terms, including austerity measures or structural reforms, which can constrain states' policy autonomy and sovereignty.
5. Crowding Out Domestic Investment: When states borrow extensively from foreign sources, they may crowd out domestic investment by competing for limited financial resources. This can hinder the growth of local industries, reduce job creation, and hamper economic diversification efforts, ultimately undermining long-term development prospects.
6. Vulnerability to External Shocks: Increased foreign debt makes states more susceptible to external shocks, such as global economic downturns, geopolitical instability, or fluctuations in commodity prices. These shocks can exacerbate debt servicing challenges and strain state finances, leading to fiscal crises and economic hardship for citizens.
7. Transparency and Accountability: Borrowing from foreign sources may raise concerns about transparency and accountability in the use of funds. States must ensure that borrowed funds are allocated efficiently and used for productive purposes that benefit citizens.
Lack of transparency can fuel corruption, mismanagement, and ultimately, the misallocation of resources.
In summary, while foreign borrowing can provide states with access to much-needed capital for development projects, excessive reliance on foreign debt poses significant risks to economic stability, sovereignty, and long-term prosperity.
States must strike a balance between borrowing prudently to finance critical investments and maintaining fiscal sustainability to avoid the pitfalls associated with unsustainable debt levels.
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