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Nigeria Faces Subnational Debt Crisis Amid Lavish Spending

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In a striking disclosure, Nigerian states have plunged into significant debt, showing alarming signs of fiscal distress, even after receiving a staggering N15.8 trillion from the Federation Account Allocation Committee (FAAC) in the last four years. The Nigeria Extractive Industries Transparency Initiative (NEITI) highlights this situation, reporting that between 2020 and 2021, states shared approximately N8.8 trillion.

Yet, this influx of funds has failed to stabilize the economy. By 2022, the 36 states and the Federal Capital Territory (FCT) amassed N3.16 trillion, with an additional N1.15 trillion disbursed in the first half of 2023. Despite these large allocations, the states often overlook their potential for internally generated revenue (IGR), which remains largely underutilized. For instance, while they received N8.8 trillion from FAAC in 2020 and 2021, their combined IGR was only N3.46 trillion.

According to a report by The Guardian, the Debt Management Office (DMO) underscores this financial imbalance, reporting that state domestic debts surged to N5.33 trillion in 2022. The situation worsens with undocumented borrowings from commercial banks, a concern former finance minister Zainab Ahmed raised at an African Development Bank forum.

Ex-President Muhammadu Buhari, addressing the growing financial stress, urged the Central Bank of Nigeria (CBN) to extend budget support to these struggling states. However, questions about the recovery of these loans cloud this intervention.

Leading banks like Access Bank, Fidelity Bank, and Zenith Bank have disclosed the magnitude of state salary bailout facilities in their financial statements, revealing tens of billions of Naira in loans with 20-year terms. These loans aim to help states meet domestic obligations, including paying salaries.

The NEITI report shows the South-South region receiving the highest allocation. However, this financial aid has not led to substantial development or poverty reduction. Nigeria’s situation, where 12% of the population lives in extreme poverty, starkly contrasts the revenue allocations with actual socio-economic progress.

Despite receiving substantial funds, states have failed to develop critical infrastructure like hospitals, schools, and affordable housing, leaving many in hardship. This situation raises serious concerns about fiscal management and resource utilization at Nigeria’s sub-national level.

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