Emmanuel OchayiState governments in Nigeria are facing the brunt of the foreign exchange (Forex) crisis and are seeking relief from their debt repayment burdens.
Ekiti, Cross River, and Ogun states have jointly proposed a suspension of their foreign debt repayments totaling $501 million.
These states argue that severe fluctuations in foreign exchange rates have significantly hampered their ability to service existing debts, thereby exacerbating their financial woes.
During a recent meeting of the Federal Account Allocation Committee, officials highlighted the escalating costs of foreign debt servicing due to rising exchange rates. Akintunde Oyebode, the Commissioner of Finance for Ekiti State, stressed the need for extensive discussions on exchange rates and multilateral financing to address these challenges effectively.
He emphasized how these financial strains have led to substantial deductions from statutory revenues, thereby reducing state balances.
Similarly, Michael Odere, the Commissioner of Finance for Cross River State, expressed concerns about the state’s ability to fund crucial capital projects amidst dwindling revenues.
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He proposed suspending certain deductions, including those for multilateral loan repayments, particularly during periods of low distributable revenue. Odere also suggested pre-FAAC stakeholder meetings to better manage financial allocations during fiscal shortfalls.
Echoing these sentiments, Dapo Okubadejo, the Commissioner of Finance for Ogun State, advocated for redirecting previously earmarked savings back into the federation account for equitable redistribution among states.
These proposals aim to alleviate financial distress and support essential infrastructural developments, thereby enabling states to navigate the unpredictability of foreign exchange rates impacting multilateral financing.
It added, “The HCF, Cross River State expressed fear that the States might not be able to fund capital projects as a result of a reduction in revenue. He advised that given the tight financial situation of the Sub-nationals, some of the proposed deductions should be suspended including repayment for multilateral loans. He also advised that whenever the total distributable revenue was low, a pre-FAAC meeting should be arranged with stakeholders to discuss ways to manage the situation.
“The HCF, Ogun States on his part, proposed that the N200 billion set aside as savings should be returned to the Federation Account for distribution to the beneficiaries. On the issue of multilateral financing, he proposed that a system should be put in place to effectively address issues associated with foreign exchange volatility. The HCF, Enugu State noted that if more funds were made available to States for infrastructural development, the revenue earnings of the States would increase.”
In response to these requests, Minister of Finance Olawale Edun assured state officials that ongoing discussions regarding foreign exchange, interest rates, and other economic challenges were underway at the National Economic Council.
He urged states to communicate their concerns through their respective chief executives or governors for thorough consideration. Edun emphasized the imperative of enhanced cooperation between monetary and fiscal authorities to foster national development amid these economically challenging times.
The Debt Management Office recently disclosed that the total external debt stock of the 36 states and the Federal Capital Territory reached $4.61 billion by December 31, 2023, marking a marginal increase from the previous year. External debt servicing costs have also surged, with deductions from states’ allocations rising by 54% in 2023 compared to 2022, indicating the growing financial strain faced by sub-national entities.
As state governments grapple with the ramifications of forex crises on their debt obligations, their calls for debt repayment suspension underscore the urgent need for coordinated efforts to address the underlying economic vulnerabilities.
