State governments have resorted to borrowing approximately N46.17 billion from three major banks in the first half of 2023 to meet their salary obligations. This revelation comes from an analysis of the financial statements for the same period of Access Bank, Fidelity Bank, and Zenith Bank Group by The PUNCH.
Access Bank emerged as the primary lender, extending loans amounting to N42.97 billion over the six-month period. Zenith Bank followed with N1.78 billion, and Fidelity Bank provided N1.42 billion in loans during this period.
Access Bank’s H1 2023 financial statement indicated that the outstanding balance on the salary bailout fund stood at N58.84 billion as of June 30, 2023, a decrease from N101.81 billion in December 2022. The bank specified that this facility, sanctioned by the Central Bank of Nigeria, carries a 20-year tenor with a 2 percent interest payable to the CBN and is disbursed to states at an all-in interest rate of nine percent per annum.
Fidelity Bank’s H1 2023 financial statement showed an outstanding balance on the salary bailout fund of N80.65 billion by June 30, 2023, compared to N82.07 billion in December 2022. The bank explained that this fund, called the FGN Intervention fund, is a CBN Bailout Fund designed to assist states in meeting their domestic obligations, including salary payments, and it also carries a 20-year tenor at nine percent per annum.
Zenith Bank’s H1 2023 financial statement reported an outstanding balance on the salary bailout fund of N125.14 billion as of June 30, 2023, down from N126.92 billion in December 2022. Zenith Bank noted that this fund, known as the Salary Bailout Scheme, aids state governments in settling outstanding salaries and is not secured.
This borrowing trend persists despite a slight increase in revenue allocation to states, with a reported N540 billion increase in the amount shared between the Federal Government, states, and Local Government Areas between 2022 and 2023.
However, 25 states in Nigeria experienced a decline in internally generated revenue (IGR) and faced cash shortages in the first quarter of 2023. The PUNCH’s findings showed that these states earned N182.26 billion in Q1 2023, a 3.07 percent decrease compared to the N188.03 billion in Q4 2022.
Furthermore, data from the Central Bank of Nigeria’s quarterly statistical bulletin revealed that state governments’ indebtedness to commercial banks surged to N2.2 trillion amid worsening revenue challenges, marking an increase of about N240 billion from previous levels.
The World Bank’s Nigeria Development Update from December 2022 warned that states’ debts could exceed 200 percent of their generated revenue in 2022 and 2023.
Economic experts caution against borrowing for recurrent expenditures like salaries, emphasizing the need for states to focus on revenue generation, reduce governance costs, and eliminate revenue leakages. The Fiscal Responsibility Commission is also engaging banks to ensure compliance with lending guidelines set out in the Fiscal Responsibility Act, 2007, with the aim of promoting transparency and accountability in government financial management.
