States In Danger Of Bankruptcy Over Subsidy, Debts

Prevaling economic realities, especially the rising price of crude oil at the international market, and the cost of petrol subsidy, which is threatening the 36 states could worsen the financial crisis facing the states ahead of 2023 election.

Already the states’ governors have expressed concerns, and are asking the Federal Government to remove subsidies and save states from going bankrupt.

While the Debt Management Office (DMO) put the total domestic debt profile of the states and the FCT at N4.1t, servicing the debt and financing an N9t budget across the states presents a gloomy outlook for the country.

It would be recalled that states only generated about N849.12b Internally Generated Revenue (IGR) in the first six months of 2021. The budget of Lagos State alone for 2022, which stands at about N1.7t, is double the entire IGR. With this development, only a few states may stay afloat with continuous subsidy payments.

The Chairman of Nigerian Governor’s Forum (NGF) and Governor of Ekiti State, Dr. Kayode Fayemi, had earlier fumed at the profitability status of the Nigerian National Petroleum Company (NNPC) Limited, adding that it contributed nothing to Federation Accounts Allocation Committee, (FAAC) last month.

Even though crude oil currently trades above $110 per barrel (a record high), payment of subsidy has eroded almost 90 per cent of funds expected to accrue to the FAAC. In January 2022 only N20.1b was remitted.

While most states are struggling to survive, with payment of salary already a difficult task, the prevailing economic situation of states is bleak, with over N3t deductions expected from FAAC this year.