Twenty-three Nigerian States Experience a Sharp 64.26% Surge in Bilateral Loans, Totaling $462.81 Million in Just Six Months
As of the end of June, a concerning trend has emerged in Nigeria as 23 states within the nation have witnessed a staggering 64.26% increase in their bilateral loans, amassing a collective debt of $462.81 million. This surge comes despite the persistent depreciation of the Nigerian naira, which has made dollar-denominated loans considerably more expensive.
Most of these loans have been sourced from a variety of foreign countries, with China, India, and France being among the primary lending nations. This striking development raises questions about the fiscal strategies employed by state governments and the potential risks associated with growing foreign indebtedness.
The Central Bank of Nigeria took a significant step in June 2023 by instructing Deposit Money Banks to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market. This move aimed to bolster economic stability, but the increase in bilateral loans suggests a growing appetite for external borrowing among state governors.
Data from the Debt Management Office reveals that 23 states have notably increased their borrowing from international sources, including the Exim Bank of China, India, Agence Francaise Development (AFD) of France, Japan International Cooperation Agency, and Germany’s Kreditanstalt Fur Wiederaufbau.
Of particular note is the mounting debt owed to AFD, with the debt to France surging by 21.84% to reach $306.32 million by the end of June. Chinese, Indian, and loans from other nations have experienced a remarkable 415.79% growth, collectively amounting to $156.49 million as of June 2023.
A breakdown of the states reveals various levels of borrowing activity. Notably, Abia, Adamawa, Akwa Ibom, Bauchi, Enugu, and Ebonyi states have increased their bilateral loans. In contrast, Cross River has seen its debt decrease to $46.85 million, while Imo and Kaduna have significantly grown their loans to $26.04 million and $91.47 million, respectively.
Other states with varying levels of bilateral debt include Kano, Kebbi, Kogi, Kwara, Lagos, Niger, Ogun, Ondo, Osun, Oyo, Plateau, and Sokoto. These states collectively reflect the diverse borrowing patterns across the country.
It is worth noting that in 2018, Nigeria secured a substantial $475 million loan from France for various development projects in Kano, Lagos, and Ogun states. The loan deal, signed by the then Minister of Finance, Mrs. Kemi Adeosun, and the Chief Executive Officer of Agence Francaise Development, Mr. Rey Rioux, included funding for transport, land degradation, and water projects in these states.
The increase in bilateral loans among Nigerian states underscores the urgency of addressing fiscal sustainability and responsible debt management practices to safeguard the nation’s economic stability in the face of these challenging financial dynamics.