Nigerian states' debt could endanger national recovery

Subject

Nigeria's state debts.

Significance

An increasing number of the 36 states that make up Nigeria’s federal system are seriously indebted. At the same time, the earning power of states has stagnated in the current period of economic downturn. As a result, state governors are finding it increasingly difficult to finance their debt obligations. A federal government bailout in July 2015 staved off disaster, but debt levels remain unsustainable. In turn, this has led to a greater focus on boosting states’ internally generated revenue (IGR).

Impacts

• High corruption and the limited legitimacy of many state-level governments complicate the task of raising taxes to generate revenue.
• Growing indebtedness has left state-level governments increasingly dependent on federal government bailouts, disempowering state leaders.
• High sub-national debt levels in Kenya, Nigeria and South Africa makes financial devolution look unsustainable regionally.