Culled—Proshare
December 17, 2019
By FBNQuest Research
Having more than doubled in the three years to December 2017, we can see from today’s chart that the aggregate domestic debt of all state governments stabilized in Q2 2019 and that that of Lagos marginally declined (due to a sizeable principal repayment). The appetite of the states for borrowing has not diminished: rather, two public agencies (the DMO and the Securities and Exchange Commission) and the federal finance ministry have tightened their supervisory role over new borrowing. Further, the states do not control their main source of income and have a large developmental backlog.
Lagos remains the best-placed state. It saw net VAT receipts of N9.1bn in July (from June revenue in the federation account). No other state saw more than N2.0bn. Lagos has easily the largest pool of businesses to tax, and has developed a reputation for decent management and for the provision of services. It is the only state to have tapped the domestic bond market since 2015.
Its net payout of N11.4bn in July by the Federation Account Allocation Committee (FAAC) was surpassed by three states, all oil producers and therefore beneficiaries of the 13% derivation formula: Delta (N16.7bn), Akwa Ibom (N13.0bn) and Rivers (N11.7bn). They are the only three states with domestic debt above N200bn at end-June other than Lagos (N479bn), which should reassure their creditors.
In aggregate, the finances of the states have deteriorated. Their collection of internally generated revenue slowed from N765bn to N756bn in 2018. Their monthly inflows from FAAC still lag their outgoings on recurrent items.
Domestic debt stock of states and Lagos (N trn; end-period)
Sources: Debt Management Office (DMO): FBNQuest Capital Research
Again in aggregate, six separate debt relief programmes from the FGN have merely eased the pain, and states will be expected to honour the new national minimum wage of N30,000 per month. The majority will struggle.
