Oil States’ Debt Soars by N465 Billion Despite N554.9 Billion Oil Revenue in H1 2023

In the first half of 2023, the nine oil-producing states in Nigeria experienced a significant boost in their finances, thanks to a substantial increase in the 13% oil derivatives share from the federal government.

During this period, they collectively received a staggering sum of N544.9 billion, representing a notable surge of 44.2% when compared to the N377.9 billion allocated in the corresponding period of 2022. This financial windfall, however, coincided with an alarming rise in the states’ debt profiles, underscoring the paradox of mounting debt amid a challenging fiscal environment.

This comprehensive analysis is derived from a study conducted by Nairalytics, the research arm of InfoStride News.

While the N588.93 billion disbursed in the first half of 2023 does reflect an 8% decrease from the N592.3 billion recorded in the second half of the previous year, it is essential to contextualize these allocations within the broader landscape of the oil market. The recent surge in international crude oil prices has been a key driver of these increases, providing some respite for the oil-producing states. Notably, the allocations in the first half of 2023 have already surpassed the total sums received in the entirety of 2021 (N448.7 billion) and 2020 (N424 billion). The nine states benefiting from this allocation are Abia, Akwa Ibom, Anambra, Bayelsa, Delta, Edo, Imo, Ondo, and Rivers.

Delta State stands out as the primary beneficiary of this distribution, receiving a substantial share of N180.05 billion, which accounts for a remarkable 33% of the total amount allocated to the nine states. This represents a significant increase of 56.9% when compared to the N114.7 billion received in the corresponding period of 2022. Akwa Ibom takes the second position, with N130.8 billion, constituting 24% of the total allocation. The state’s 13% share surged by 63.5% in comparison to the N80.17 billion received in the first half of 2022 but did experience a decrease of 8.2% when compared to the second half of 2022. Bayelsa State was allocated N92.96 billion in this period, marking a 21.1% increase from the N76.7 billion received in H1 2022 but a 16.5% decline from the N92.96 billion granted in the second half of 2022. Other states in the group include Rivers (N92.74 billion), Edo (N17.5 billion), Ondo (N16.9 billion), Anambra (N5.4 billion), and Abia with N2.4 billion.

Despite the significant financial influx from these oil derivatives, the oil-producing states find themselves grappling with a paradoxical situation – a mounting debt profile. They have emerged as some of the most indebted states within the federation. Notably, these nine states collectively account for 25.4% of the debt profile of all 36 states, including the Federal Capital Territory (FCT), which is estimated at a staggering N9.17 trillion.

Data sourced from the Debt Management Office (DMO) reveals a disconcerting trend, indicating that the total debt stock for these nine states surged from N1.86 trillion as of December 2022 to N2.33 trillion by the end of June 2023. This substantial increase can be attributed to both the revaluation of external debt and the acquisition of new loans by these states. The breakdown of the data indicates that the total external debt for these states stood at $861.8 million as of June 2023, equating to a local value of N662.9 billion when calculated at an exchange rate of N769.25/$1. In contrast, domestic debts amounted to N1.66 trillion during this period, signifying an increment of N196.3 billion from the N1.47 trillion reported as of December 2022. These figures culminate in a daunting debt profile of N2.33 trillion, signifying a substantial N465.4 billion increase from the initial debt stock of N1.86 trillion at the close of 2022.

The increase in federal allocations to the oil-producing states undoubtedly offers a positive development, which can significantly contribute to fulfilling their financial obligations. Additionally, there exists a potential for further increases, particularly in the wake of improved fiscal numbers following the removal of petrol subsidies and the continued bullishness of crude oil prices in the international market.

However, it is crucial to acknowledge that many of these oil-producing states rank among the nation’s most indebted entities, despite the additional inflows from the federal government. This situation could inadvertently encourage complacency on the part of state governments, fostering a heavy reliance on federal allocations. This, in turn, may discourage these states from actively seeking ways to enhance their internal revenue-generating capacity, leaving them highly dependent on federal government allocations. In order to ensure a more sustainable financial future for these states, it is imperative to strike a balance between federal support and state-led efforts to bolster their economic self-reliance.