Amidst a growing economic crisis and dwindling internally generated revenue (IGR), state governments in Nigeria have resorted to borrowing approximately N46.17 billion from three prominent banks between January and June 2023 to meet their salary obligations. This revelation comes from an analysis of the financial statements of Access Bank, Fidelity Bank, and Zenith Bank Group for the first half of 2023.
Access Bank emerged as the primary source of loans for the states during this period, extending loans amounting to N42.97 billion. Zenith Bank followed with N1.78 billion in loans, while Fidelity Bank provided N1.42 billion.
Access Bank’s H1 2023 financial statement showed that the outstanding balance on the salary bailout fund was N58.84 billion by June 30, 2023, down from N101.81 billion in December 2022. Fidelity Bank reported an outstanding balance of N80.65 billion by June 30, 2023, compared to N82.07 billion in December 2022. Zenith Bank’s H1 2023 financial statement indicated an outstanding balance of N125.14 billion by June 30, 2023, a slight decrease from N126.92 billion in December 2022.
These loans were provided under the Salary Bailout Scheme, approved by the Federal Government to assist states in paying outstanding salaries to their workers. The loans have a 20-year tenor and are extended at an interest rate of 9 percent per annum. Repayments are deducted directly from the states’ monthly statutory allocations.
Despite a modest increase in revenue allocation to states, 25 states experienced a decline in IGR during the first quarter of 2023, creating cash flow challenges. These states earned N182.26 billion in Q1 2023, falling short of their target revenue by 16.99 percent.
The total indebtedness of state governments to commercial banks reached N2.2 trillion in March 2023, reflecting a significant increase from previous levels. The World Bank warned that state debts could exceed 200 percent of revenue in 2022 and 2023.
Economic experts have criticized the practice of borrowing to cover recurrent expenses, particularly salaries, emphasizing the need for states to focus on boosting internally generated revenue and reducing the cost of governance. The Fiscal Responsibility Commission is also taking steps to ensure compliance with lending guidelines outlined in the Fiscal Responsibility Act, 2007, to promote transparent and accountable financial management in Nigeria.
