States Debt May Hit ₦‎1.34 Trillion Over Palliative Loans

A recent subsidy palliative loan initiative may drive the borrowing of Nigeria’s 36 states from the Federal Government to approximately N1.34 trillion. This estimate is based on findings reported by The PUNCH, a Nigerian news outlet. The debt is accumulated under the budget support facility, including N614 billion as of 2019, an additional N656 billion in 2021, and a fresh N69.12 billion as a subsidy palliative in the current year.

It’s important to differentiate this debt from states’ domestic debt of N5.48 trillion and external debt of $4.4 billion as of the end of 2022, as recorded by the Debt Management Office.

In 2019, the 36 states collectively owed N614 billion under the budget support loan facility. Former Minister of Finance, Budget, and National Planning, Zainab Ahmed, disclosed during a National Economic Council briefing in 2019 that the Federal Government had made over N614 billion available to 35 states. This total included N28.8 billion approved as a budget support loan facility to the states in 2017.

In November 2021, the National Economic Council announced that former President Muhammadu Buhari approved an additional N656 billion Bridge Financing Facility for the states. Each state was expected to receive N18.2 billion as part of this support to meet their financial obligations.

The recent palliative loans were introduced to alleviate the impact of the removal of petrol subsidies, which led to significant increases in fuel prices and a subsequent rise in the cost of goods and services. While the offer was optional, the Federal Government provided N5 billion to each state, along with 40,000 bags of maize. The loan carried a moratorium of three months, followed by monthly deductions starting in December.

The decision to provide these palliative loans was met with both acceptance and criticism, with concerns raised about the potential impact on inflation and the economy. Additionally, there were calls for a review of the subsidy removal policy itself.

As Nigeria navigates its economic challenges, including inflation and the fiscal health of its states, the outcomes of these policy measures and financial initiatives will continue to play a significant role in shaping the country’s economic landscape.