Naira Float Affect States As External Debt Rises To ₦3 Trillion

Following the recent floating of the naira by the Central Bank of Nigeria, the external debt burden of the 36 states and the Federal Capital Territory, has risen to ₦3 trillion.

Recall that CBN on Wednesday, June 14, 2023, directed Deposit Money Banks to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market, to enable its free float against the dollar and other global currencies.

According to data from the FMDQ Exchange, the latest development led to an immediate decline in the value of the naira which fell from its 471/$ to 664.04/$ at the Investors & Exporters FX window.

Naija News learnt that on Tuesday, June 13, a day before the CBN changed its foreign exchange policy, the total external debt stock of states was $4.46bn (N2.09tn at ₦471/dollar) as of the end of December 2022.

By Friday, the debt stock, while retaining its dollar value of $4.46bn had grown to ₦2.96tn at ₦663.04/dollar. This means the states will need revenue in local currency to pay their foreign obligations.

The prevailing exchange rate means the external debts of states like Lagos ($1.25bn) have grown from ₦588.78bn to ₦828.84bn; Kaduna ($573.74m) from ₦270.23bn to ₦380.42bn; Edo ($261.15m) from ₦123bn to ₦173.16bn; Cross River ($209.53m) from ₦98.69bn to ₦138.92bn; Bauchi ($165.78m) from ₦78.08bn to ₦109.92bn.

The external debt profile of Abia ($94.28m) has grown from ₦44.41bn to ₦62.51bn; Adamawa ($104.61m) from ₦49.27bn to ₦69.36bn; Akwa Ibom ($44.85m) from ₦21.12bn to ₦29.74bn; Anambra ($103.82m) from ₦48.90bn to ₦68.84bn; Bayelsa ($60.39m) from ₦28.45bn to ₦40.04bn; Benue ($29.94m) from ₦14.10bn to ₦19.85bn; Borno ($18.10m) from ₦8.53bn to ₦12bn; Delta (59.87m) from ₦28.19bn to ₦39.69bn.

Ebonyi ($58.57m) from ₦27.59bn to ₦38.84bn; Ekiti ($105.59m) from ₦49.73bn to ₦70.01bn; Enugu ($120.86m) from ₦56.92bn to ₦80.13bn; Gombe ($32.48m) from ₦15.29bn to ₦21.54bn; Imo ($51.09m) from ₦24.07bn to ₦33.88bn; Jigawa ($26.99m) ₦12.71bn to ₦17.89bn; Kano ($100.67m) from ₦47.41bn to ₦66.75bn; Katsina ($53.92m) from ₦25.39bn to ₦35.75bn; Kebbi ($40.93m) from ₦19.28bn to ₦27.14bn.

In Kogi ($52.79m), external debt profile spiked from ₦24.87bn to ₦35.01bn; Kwara ($44.87m) from ₦21.13bn to ₦29.75bn; Nassarawa ($52.99m) from ₦24.96bbn to ₦35.14bn; Niger ($69.23m) from ₦32.61bn to ₦45.90bn; Ogun ($136.26m) from ₦64.18bn to ₦90.35bn; Ondo from ($90.68m) from ₦42.71bn to ₦60.13bn; Osun ($91.78m) from ₦43.23bn to ₦60.85bn; Oyo ($72.24m) from ₦34.02bn to ₦47.89bn; Plateau ($32.39bn) from ₦15.26bn to ₦21.48bn; Rivers ($87.13m) from ₦41.04bn to ₦57.77bn.

Despite boasting relatively smaller external debt profiles, states like Sokoto ($36.56m) have recorded debt growth from ₦17.22bn to ₦24.24bn; Taraba ($46.47m) from ₦21.89bn to ₦30.81bn; Yobe ($22.51m) from ₦10.60bn to ₦14.93bn; Zamfara ($28.86m) from ₦13.59bn to ₦19.14bn; FCT ($24.36m) from ₦11.47bn to ₦16.15bn.

According to a multinational financial service, JP Morgan, the naira will likely appreciate to ₦600/dollar in the coming months.

It said, “While it will take a few days for USD/NGN spot to settle, we fully expect an initial overshoot towards the parallel market rate of -750 or higher, after which, we expect USD/NGN to settle in the high 600s over [the] coming months”

Given that many states already experience revenue shortfalls, the unification of the naira exchange rate is anticipated to make the total debt load on states much worse. States with significant salary backlogs for workers, like Abia, Benue, Plateau, Taraba, Zamafara, Cross River, and Rivers, will likely feel this increase in their debt burden more.

However, the effect of the increase in their debt burden might be cushioned by an increase in their revenue allocation from the Federal Government.