Naira floatation by CBN raises states’ debt to N3trn

The recent currency floating by the Central Bank of Nigeria (CBN) may result in an increase in the external debt load of the 36 states and the Federal Capital Territory of up to over 40%.

The overall external debt stock of states was $4.46 billion (N2.09 trillion at N471/dollar) as of the end of December 2022 on Tuesday, June 13, the day before the CBN modified its foreign exchange policy.

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By Friday, the debt stock had increased to N2.96 trillion at N663.04 per dollar, maintaining its original dollar value of $4.46 billion. This implies that in order to meet their international debt, the governments will need to generate local currency earnings.

On Wednesday June 14, 2023, the CBN 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.

It said, “The Central Bank of Nigeria wishes to inform all authorised dealers and the general public of the following immediate changes to operations in the Nigerian Foreign Exchange Market: Abolishment of segmentation. All segments are now collapsed into the Investors and Exporters window.”

This led to an immediate decline in the value of the naira. The local currency fell from its 471/$ to 664.04/$ at the Investors & Exporters FX window, according to data from the FMDQ Exchange.

Meanwhile, the naira has continued to rise and fall on the Investors & Exporters’ window since last week.

The prevailing exchange rate means the external debts of states like Lagos ($1.25bn) have grown (in naira terms) from N588.78bn to N828.84bn; Kaduna ($573.74m) from N270.23bn to N380.42bn; Edo ($261.15m) from N123bn to N173.16bn; Cross River ($209.53m) from N98.69bn to N138.92bn; Bauchi ($165.78m) from N78.08bn to N109.92bn.

The external debt profile of Abia ($94.28m) has grown from N44.41bn to N62.51bn; Adamawa ($104.61m) from N49.27bn to N69.36bn; Akwa Ibom ($44.85m) from N21.12bn to N29.74bn; Anambra ($103.82m) from N48.90bn to N68.84bn; Bayelsa ($60.39m) from N28.45bn to N40.04bn; Benue ($29.94m) from N14.10bn to N19.85bn; Borno ($18.10m) from N8.53bn to N12bn; Delta (59.87m) from N28.19bn to N39.69bn.

Ebonyi ($58.57m) from N27.59bn to N38.84bn; Ekiti ($105.59m) from N49.73bn to N70.01bn; Enugu ($120.86m) from N56.92bn to N80.13bn; Gombe ($32.48m) from N15.29bn to N21.54bn; Imo ($51.09m) from N24.07bn to N33.88bn; Jigawa ($26.99m) N12.71bn to N17.89bn; Kano ($100.67m) from N47.41bn to N66.75bn; Katsina ($53.92m) from N25.39bn to N35.75bn; Kebbi ($40.93m) from N19.28bn to N27.14bn.

In Kogi ($52.79m), external debt profile spiked from N24.87bn to N35.01bn; Kwara ($44.87m) from N21.13bn to N29.75bn; Nassarawa ($52.99m) from N24.96bbn to N35.14bn; Niger ($69.23m) from N32.61bn to N45.90bn; Ogun ($136.26m) from N64.18bn to N90.35bn; Ondo from ($90.68m) from N42.71bn to N60.13bn; Osun ($91.78m) from N43.23bn to N60.85bn; Oyo ($72.24m) from N34.02bn to N47.89bn; Plateau ($32.39bn) from N15.26bn to N21.48bn; Rivers ($87.13m) from N41.04bn to N57.77bn.

Despite boasting relatively smaller external debt profiles, states like Sokoto ($36.56m) has recorded debt growth from N17.22bn to N24.24bn; Taraba ($46.47m) from N21.89bn to N30.81bn; Yobe ($22.51m) from N10.60bn to N14.93bn; Zamfara ($28.86m) from N13.59bn to N19.14bn; FCT ($24.36m) from N11.47bn to N16.15bn.