A Review of the Nigerian Energy Industry

Declining Revenue: Banks to slow down state govts’ borrowing

Dr. Ngozi Okonjo-Iweala, Nigeria's minister of finance
Dr. Ngozi Okonjo-Iweala, Nigeria’s minister of finance

08 January 2015, Lagos – The dwindling revenue to the federation account owing to the declining crude oil prices may hinder state governments from securing loans from Nigerian banks and other multilateral institutions as banks have already resolved to stop lending to them to forestall a debt crisis.

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonji-Iweala, had called for enhanced monitoring of borrowing by state governments as a response to the decline of over N100 billion in monthly gross revenues flowing into the federation account since July last year.

Crude oil, the mainstay of the Nigerian economy, has suffered more than 50 per cent fall in the international price of UK Brent/Bonny Light crude since mid-last year.

In addition to that, most state governments in Nigeria have poor records of internal revenue collection.

“Oil revenues are by far the largest element of the monthly gross statutory allocation to the three tiers of government. Their decline generally creates a shortfall in the distribution in relation to budget estimates, which should prompt an augmentation (a pay-out from the excess crude account), “said analysts at FBN Capital.

Last month Okonjo-Iweala capped drawings from the excess crude account by year-end at $2 billion from the current balance of $4.1 billion.

The state governments, therefore, are being squeezed on bank borrowings and faced the prospect of further falls in the monthly pay-out from the Federation Accounts Allocation Committee (FAAC).

Meanwhile, THISDAY findings revealed that the debt profile of states in Nigeria is going up by day.

For instance, recent figures for the domestic debt of the 36 state governments and the Federal Capital Territory (FCT) published by the Debt Management Office (DMO) showed a total of N1.45 trillion ($8.5 billion) or N1.71trillion ($10.0billion) including two states for which it had to provide estimates (Bayelsa and Ekiti).

Predictably, the most indebted states were Lagos (N279 billion) and two oil-producers (Rivers and Akwa Ibom).

In several cases, the outstanding debt decreased markedly and implausibly from N62 billion to N42 billion for Edo, for example, and from N3 billion to less than N1 billion for Kebbi.

The DMO figures excludes bond issuance, for which outstanding obligations are estimated at a further N460 billion.

The federal finance ministry, the Securities and Exchange Commission (SEC), and the DMO together authorise bond issuance by states.

Together they examine debt sustainability but also keep an eye on the electoral calendar and discourage capital raising by state governments near the end of their term for projects, which their successor administrations may not support.
*Eromosele Abiodun – Thisday

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