Nigerian States’ Borrowing from Federal Government to Reach N1.34tn Due to Subsidy Palliative Loans

In a recent investigation by The PUNCH, it has been projected that the implementation of fresh subsidy palliative loans could potentially push borrowing by 36 Nigerian states from the Federal Government to a total of N1.34 trillion. This sum would encompass the debts accrued under the Federal Government’s budget support initiative, which includes a N614 billion debt as of 2019, an additional N656 billion debt in 2021, and a newly acquired N69.12 billion debt this year as part of the subsidy palliative measures.

These figures are distinct from the states’ other financial obligations, such as the domestic debt of N5.48 trillion recorded as of March 2023, and the external debt totaling $4.4 billion as of December 31, 2022, as reported by the Debt Management Office.

Analysis undertaken by The PUNCH indicated that the aggregate debt owed by the 36 states to the Federal Government through the budget support loan initiative was N614 billion as of 2019. The then Minister of Finance, Budget, and National Planning, Zainab Ahmed, revealed during an August 2019 National Economic Council briefing that over N614 billion had been extended to 35 states by the Federal Government. This sum also featured an authorized N28.8 billion as a budget support loan in 2017.

Further reports from the same briefing indicated that a team from the Nigerian Governors Forum would work with the Central Bank of Nigeria and the Ministry of Finance to finalize payment modalities. Subsequently, in November 2021, the National Economic Council announced a fresh N656 billion Bridge Financing Facility approved by former President Muhammadu Buhari, aimed at assisting state governments in fulfilling their financial commitments, including previous budget support loan repayments.

The bridge facility, as stated by the former finance minister, would be disbursed in six tranches over six months to the states. Each state was expected to receive N18.2 billion, with a 30-year tenure, a two-year moratorium, and an interest rate of nine percent. This initiative aimed to help states manage the repayment of previous bailout facilities guaranteed by the Federal Government.

However, more recently, the Federal Government unveiled a N5 billion palliative for each state in the country, including the Federal Capital Territory, as a response to the removal of petrol subsidy. This policy, which led to significant increases in fuel prices, contributed to elevated costs of goods and services, exacerbating economic challenges and increasing the number of people living in poverty.

The Nigeria Governors Forum clarified that this offer was optional and invited states uninterested in participating to return the N2 billion already disbursed to them. The terms of the facility indicated that N4 billion would be disbursed, split into a non-interest loan (48 percent) and a Federal Government grant (52 percent). The repayment period would span 20 months, with a three-month moratorium before a monthly deduction of N120 million applies.

The article also highlights the concern of experts and analysts. While the debt size per state at N5 billion might not have a severe financial impact, it’s noted that injecting funds into the economy without proportional production could worsen inflation. The article also sheds light on the ongoing negotiations between the states and the Federal Government regarding repayment of loans, indicating that as of the article’s publication, no confirmation of loan repayment had been provided.