The total external and domestic debts of States in Nigeria hit N5.15 trillion in 2018. This is revealed in the latest Domestic and External Debt Stocks Report, released by the Debt Management Office (DMO) for the last quarter of 2018.
According to DMO’s report, total external debts owed by States in Nigeria fell from N1.304tn in the second quarter to N1.29 trillion in the last quarter of 2018, while domestic debts increased from N3.47tn to N3.85tn for the period under review.
- Total debts accrued to States government increased by 8%
- Domestic debt for States as at Q4 stood at N3.85tn
- External debt for States at the end of Q4 stood at N1.29tn
- For Domestic debt, Lagos, Delta and Rivers top list of domestic debts
- Also, Lagos, Edo and Kaduna top external debts stock list
- Yobe, Borno and Taraba recorded the least external debt stock
- Anambra, Katsina and Yobe recorded the least domestic debts stock
Total debts accruing to States up by 8% in 2018
DMO’s report shows that debts accruing to states in Nigeria for the last quarter of 2018 increased by 8% between the second and last quarter. In the second quarter of 2018, total debts accruing to State Governments stood at N4.78tn, while it increased to N5.15tn for the period under review.
Furthermore, breakdown shows that external debts dropped in the last quarter of 2018. However, domestic debts increased in the last quarter, spiralling to N3.85tn from N3.47tn. The rise in domestic debts may be traceable to periodic bailouts given to States by the Federal Government.
Domestic debts rise, Lagos, Delta and Rivers are highly indebted
Domestic debt which recorded an increase for the last quarter shows that Lagos state tops the list with N530.2bn. Also, Delta State ranked second highest domestic debtor (N228.8bn), while Rivers State ranked third with N225.5bn. Similarly, Akwa Ibom (N198.6bn) and Cross-River (N167.9bn) ranked 4th and 5th respectively.
Conversely, Anambra, Katsina, and Yobe recorded the least domestic debts for the last quarter with N33.4bn, N30.8bn and N27.7bn respectively.
Lagos also maintain a distant top on external debt list, accounting for 33.7% of total debt
The report shows that Lagos state external debt amounted to N437.9bn in the last quarter, representing 33.7% of the total external debts. However, this is a decline when compared to the external debt figure in Q2 2018, which stood at N445.6bn.
Similarly, Edo Kaduna an Cross River all recorded N84.8bn, N69.7bn and N57.9bn respectively.
How the economy reacts to rising debt
According to the U.S Congressional Budget office, the consequences of large and growing national debts include:
i. Lower national savings and income
ii. Higher interest payments, leading to large tax hikes and spending cuts
iii. Decreased ability to respond to problems
iv. Greater risk of a fiscal crisis
Similarly, David Primo, a scholar at the Mercatus Centre and a professor at the University of Rochester said:
“The economy is not going to implode tomorrow because of the national debt or federal deficit, but it is a long run problem and the sooner we start dealing with it, the better off we’ll be as a country.”
Nairametrics earlier reported that Nigeria’s total external and domestic debts rose to N24.387 trillion in 2018.
Investors need to be aware of what rising national debt means for the future of the economy and financial markets.
Rising debt works against investors. For instance, as consumers’ budgets get tighter, so do their purse strings. And when people stop spending on goods and services, company revenues take a hit, thereby resulting in falling profits and declining stock prices.
National debt drags on economic growth
Once government debt reaches a certain size, it really drags on long-term economic growth. It can also drag on the creditworthiness of the government.
Also, as the country’s debt increases, the government will spend more of its budget on interest costs, increasingly crowding out public investments and subsequently growth.
Governments often borrow to address unexpected events, like wars, financial crises, and natural disasters. This is relatively easy to do when the debt is small. However, with a large and growing debt, the Nigerian government has fewer options available.