Economy
Economic crisis: States borrow N46bn from banks to pay salaries
•Access, Fidelity, Zenith lend states N46bn in six months as govs battle poor IGR
•Fiscal Responsibility Commission issues guidelines to banks on lending to states, MDAs
State governments borrow about N46.17bn from three banks to pay salaries between January and June 2023.
The findings were based on an analysis of the half-year 2023 financial statements of Access Bank, Fidelity Bank, and Zenith Bank Group.
The states borrowed the most from Access Bank in six months, with a record of N42.97bn loan.
It was followed by Zenith Bank (N1.78bn borrowed) and Fidelity Bank (N1.42bn borrowed) within the six-month period.
According to the H1 2023 financial statement of Access Bank, the outstanding balance on the salary bailout fund was N58.84bn by June 30, 2023, from N101.81bn in December 2022.
“The amount of N58,842,651,795 represents the outstanding balance on the state salary bailout facilities granted to the bank by the Central Bank of Nigeria for onward disbursements to state governments for payments of salary of workers of the states. The facility has a tenor of 20 years with a 2 per cent interest payable to the CBN. The bank is under obligation to on-lend to the states at an all-in interest rate of nine per cent per annum. From this creditor, the bank has nil undrawn balance as at 30 June 2023,” Access Bank noted.
For Fidelity Bank, the H1 2023 financial statement showed that the outstanding balance on the salary bailout fund was N80.65bn by June 30, 2023, from N82.07bn in December 2022.
The bank noted “FGN Intervention fund is CBN Bailout Fund of N80.65billion (31 Dec 2022: N82.07bn). This represents funds for states in the Federation that are having challenges in meeting up with their domestic obligation including payment of salaries. The loan was routed through the bank for on-lending to the states. The bailout fund is for a tenor of 20 years at 9 per cent per annum.”
It added, “The bailout fund is for a tenor of 20 years at 7 per cent per annum and availed for the same tenor at 9 per cent per annum until March 2020, the rate was reduced to 5 per cent for one year period due to Covid-19 pandemic to March 2021 after which it was extended to February 2023. CBN on August 17 2022 further reviewed the rates in response to economic outlook and approved the following order; All intervention facilities granted effective July 20, 2022 shall be at 9 per cent per annum while all existing intervention facilities granted prior to July 20, 2022 shall be at 9 per cent per annum effective September 1, 2022.”
According to the H1 2023 financial statement of Zenith Bank, the outstanding balance on the salary bailout fund was N125.14bn by June 30, 2023, from N126.92bn in December 2022.
The bank noted, “The Salary Bailout Scheme was approved by the Federal Government to assist state governments in the settlement of outstanding salaries owed their workers. Funds are disbursed to banks nominated by beneficiary states at two per cent for on-lending to the beneficiary states at 9 per cent. The loans have a tenor of 20 years. Repayments are deducted at source, by the Accountant General of the Federation, as a first line charge against each beneficiary state’s monthly statutory allocation. This facility is not secured.”
Findings show that the loans occurred despite the slight increase in the revenue allocation to states.
It was earlier reported a N540bn increase in the amount shared between the Federal Government, states, and Local Government Areas.
This was according to an analysis of the communiqués issued by the Federation Account Allocation Committee between January to July for 2022 and 2023.
In 2022, a total of N4.96tn was shared for the first seven months of the year.
By 2023, a total of N5.5tn was shared for the first seven months of the year.
About 25 states in Nigeria suffered a drop in their internally generated revenue and battled cash crunch in the first quarter of 2023.
Data obtained from the budget implementation report of each state showed that 25 states earned N182.26bn in Q1 2023.
This was a shortfall of 3.07 per cent or N5.77bn from the N188.03bn made in Q4 2022, based on a quarter-by-quarter analysis.
Although there are 36 states in Nigeria, Rivers and Sokoto have no data for Q1 2023 yet; Akwa Ibom has no data for Q1 2022, while Kwara, Edo, Kaduna, Lagos, Bauchi, Zamfara, Yobe, and Ogun have no data for Q4 2022.
Therefore, the figure for IGR was limited to 25 out of the 36 states in the country.
Findings showed that the 25 states projected an IGR of N219.56bn for Q1 2023 but only made about N182.26bn, which means that they had a revenue performance of 83.01 per cent.
This also means that the revenue underperformed by 16.99 per cent as it failed to hit the states’ revenue target.
States debt
State governments’ indebtedness to commercial banks rose to N2.2tn amid worsening revenue challenges.
This was according to data from the quarterly statistical bulletin of the Central Bank of Nigeria, which showed that states and LGAs owed banks about N2.21tn as of March 2023.
CBN data also revealed the states’ indebtedness rose from N1.97tn to the current figure, indicating an increase of about N240bn within the period under review.
The report read, “Debt levels for an average state are estimated to increase from 154.6 per cent of revenues in 2021 to above 200 per cent of revenues in both 2022 and 2023.”
Borrowing for salaries
Economic experts described borrowing for the payment of salaries as dangerous, cautioning states against this.
An economist and former Vice-Chancellor of the University of Uyo, Prof Akpan Ekpo, acknowledged the bad economic situation of the country, which has compelled states to do more borrowing.
He, however, advised against borrowing for recurrent expenditures, such as salaries.
“The situation is bad but most states do not have enough in terms of internally generated revenue. A lot of the states, even their federal government allocation, cannot pay salary, which is very dangerous. You should not borrow to pay salaries.
“You should borrow to finance capital projects. States have to think of new ways of increasing their IGRs. If they continue borrowing to pay salaries, it is not good for the economy,” Ekpo said.
He urged the states to look at what they have in their states in order to find a way to increase their revenue.
Ekpo also urged the states to increase service delivery, which will attract more revenue.
A development economist, Dr Aliyu Ilias, also acknowledged the economic difficulties that states are faced with but noted that borrowing to pay salaries is a problem.
“With the current hardship we have in the country, they may not have alternative than to resort to borrowing. But borrowing to pay salaries is becoming a problem. We must stop borrowing for recurrent expenditure. We can borrow for capital expenditure; that is okay. The consequence is that we are digging ourselves into more trouble,” he said.
He admitted that state governments might be unable to join in the Federal Government’s effort to increase allowance to workers.
He then advised, “Each state should look inward, find what they are good at and maximise it.”
Also speaking with The PUNCH, a Professor of Economics at the Olabisi Onabanjo University, Prof Sheriffdeen Tella, said borrowing for consumption is worsening the country’s inflation.
“It is part of what was creating inflation. Most of the money borrowed were for consumption not production. It is unfortunate,” he said.
He urged the states to stop depending on the Federal Government and boost local production for more revenue generation.
A former President, Association of National Accountants of Nigeria, Dr Sam Nzekwe, described the borrowing by states as bad.
“This is the bad borrowing we are talking about – borrowing for recurrent expenditure. That is a very bad one,” he stressed.
He further called on states to stop depending on the Federal Government, cut governance costs, and block revenue leakages.
“Most of them depend on the Federal Government. I will advise them to work hard to increase their internally generated revenue. When they do that, they have to look into the costs of governance – having a fleet of cars for themselves and aides.
“They should reduce the cost of governance and block leakages. Most of the money you see are being embezzled,” he said.
• Says economic reforms have placed Nigeria on recovery path
• Shettima insists economy would have collapsed without tough decisions
President Bola Tinubu has declared that his administration has no regrets over the removal of petrol subsidy, insisting that Nigeria will never return to the old subsidy regime despite criticisms from political opponents.
Tinubu made the declaration on Monday evening at an event tagged Together Till 2027: An Evening with Original City Boy, organised by the City Boy Movement in collaboration with the Relax-Tinubu-Is-Fixing-Nigeria movement.
Defending his decision to remove fuel subsidy on May 29, 2023, the President said Nigeria was heading towards bankruptcy when he assumed office, stressing that the country could no longer sustain the financial burden.
Drawing an analogy from the biblical account of Moses leading the Israelites out of Egypt, Tinubu said returning to the subsidy regime would amount to reversing Nigeria’s journey towards economic recovery.
“You cannot ask Moses to go back to Egypt. We wake up with ideas, original thoughts, and deep thinking to move this country forward. With your energy, your support, Nigeria will never go back to Egypt. No regrets,” he declared.
The President also took a swipe at his political opponents, particularly former Vice President Atiku Abubakar, who had proposed restoring a modified petroleum subsidy arrangement if elected in 2027.
Tinubu maintained that his administration inherited enormous economic challenges, including depleted foreign reserves, outstanding obligations to foreign airlines and unsustainable government borrowing.
He explained that rather than dwell on the shortcomings of the previous administration, he accepted responsibility for addressing the country’s economic difficulties.
According to him, the difficult decisions taken by his government have begun yielding positive results, with the economy recording steady growth.
Turning to the 2027 presidential election, Tinubu urged young Nigerians to mobilise support for his administration and ensure that eligible voters obtain their Permanent Voter Cards.
He maintained that the forthcoming election should be about securing the country’s future rather than advancing the personal ambition of any candidate.
“You are not campaigning for me. You are campaigning for your own future, and that future is Renewed Hope,” he stated.
The President also defended the Students Loan Act, revealing that more than one million students had benefited from the Nigerian Education Loan Fund, NELFUND.
He commended his son, Seyi Tinubu, and members of the City Boy Movement for mobilising young Nigerians, urging them to intensify their grassroots engagements ahead of the election.
Speaking earlier, Vice President Kashim Shettima insisted that Nigeria’s economy would have collapsed without the far-reaching reforms introduced by the Tinubu administration.
Shettima argued that the President demonstrated courage by implementing difficult policies at a time when the country’s economic outlook was increasingly uncertain.
He cited economic growth of 4.43 per cent in the last quarter and foreign reserves reportedly approaching $60 billion as evidence of the administration’s progress.
Acknowledging the hardship experienced by Nigerians, the Vice President maintained that the situation could have been worse without the government’s intervention.
He also assured Nigerians that the administration was preparing measures to address agricultural challenges and bring down food prices.
“The President has to be commended, not demonised. Yes, Nigerians have gone through some tough times, but it could have been worse,” Shettima said.
In his remarks, Deputy Senate President Barau Jibrin described the City Boy Movement as a technology-driven political organisation capable of strengthening Tinubu’s reelection campaign.
He urged the group to deploy artificial intelligence in communicating the President’s policies, achievements and political philosophy while responding to opposition narratives.
Similarly, Speaker of the House of Representatives, Tajudeen Abbas, called on political officeholders to present verifiable accounts of projects and interventions delivered under the Tinubu administration.
Abbas disclosed plans to publish an audit of federal government interventions in his Zaria constituency within 14 days, challenging other public officeholders to demonstrate what they had achieved for their constituents.
He urged the City Boy Movement to independently verify government projects and provide feedback from ordinary Nigerians.
Earlier, the Director-General of the movement, Francis Shoga, assured Tinubu that Nigerian youths were prepared to mobilise nationwide in support of his Renewed Hope agenda.
Shoga described members of the organisation as committed partners in the administration’s national transformation programme, pledging to take its message to communities across the country.
Tinubu’s latest declaration comes amid continuing debate over the economic consequences of fuel subsidy removal, which triggered sharp increases in petrol prices and contributed to rising living costs across Nigeria.
By Francis Onoh
It is the right of every Nigerian to be financially included in the system. Data from the country’s foremost financial institution, the Central Bank of Nigeria (CBN) and the organisation Enhancing Financial Innovation and Access show that approximately 40% of Nigerians adults are financially excluded.
Attaining the 3.4% projected growth in the economy’s GDP will be difficult if not impossible, if the petty traders, the local skill workers and the roadside sellers are excluded from financial services and products that can aid their businesses. Enhancing financial inclusion for economic growth requires that financial literacy be extended and incorporated into the activities of organisations that work at the grassroots, for example, religious institutions.
Although with low levels of literacy, Emeka, Haruna or Bankole as devoted adherents of their various religions, are more likely to understands that their money is secure in the financial sector, that products such as pension plan, health insurance schemes and access to credit are available for citizens who are financially included, if and only if leaders of their religion introduce financial literacy to them. Combining their obligation to teach articles of their faith with introducing their members to financial literacy is one way to go if our country has to remedy the financial exclusion created by poverty and limited access to formal education.From the Global Multidimensional Poverty Index, the dimensions of poverty are Health, Education and Standard of Living.
Access to financial services can encourage people to enrol in a health insurance scheme to ensure good health within a manageable expenditure. A financially included person will have formal or informal education by association, which will invariably improve the living standard.
A financially included person is more likely to increase their business share if they access credit facilities in the financial sector and stand a better chance to benefit from government poverty alleviation programmes or even access funds from international development.
Making about 40% of Nigerian adults, which is about 35 million people, financially included will enhance capital formation assets, improve citizens’ disposable income, grow the nation’s financial sector and in extension catalyse industrialisation, which the country direly needs at this time. Financial inclusion for all is a necessary good that should be pursued by the Nigerian government at all levels, and stakeholders, such as religious leaders, must be made aware of their obligation in this space.
The time to do this is now.
Francis Onoh writes from Enugu
The Bank gave this warning on Monday during the public presentation of its latest Nigeria Development Update report titled ‘Building Momentum for Inclusive Growth’ in Abuja.
President Bola Tinubu signed the 2025 Appropriation Act into law, approving a record budget of N54.99tn, the highest in Nigeria’s history.
The budget was raised from the initial proposal of N49.7tn submitted to the National Assembly.
The fiscal plan makes provisions for N13.64tn in recurrent expenditure, N23.96tn for capital projects, N14.32tn for debt servicing, and N3.65tn for statutory transfers, while projecting a deficit of N13.08tn, to be financed through domestic and external borrowing.
The budget assumptions include a crude oil benchmark of $75 per barrel, oil production at 2.06 million barrels per day, an average exchange rate of N1,400/$, and an inflation target of 15 per cent.
Speaking at the event, the World Bank’s Lead Economist for Nigeria, Mr Alex Sienaert, said that despite strong revenue gains recorded in 2024, Nigeria’s 2025 budget assumptions remain optimistic and may prove difficult to meet.
He said, “It’s a very ambitious budget. Even with the very positive revenue sort of tailwind that we have… even considering that, it looks like it’s going to be pretty hard to meet some of the ambitious revenue targets that are in there.”
According to him, key assumptions such as average daily crude oil production of 2.1 million barrels per day and a benchmark oil price of $75 per barrel are unlikely to hold, noting that current production figures are closer to 1.6 million barrels per day.
He also cited uncertainty over how much revenue would flow from the removal of the petrol subsidy and the planned windfall tax on foreign exchange gains, saying these could weaken the Federal Government’s revenue position.
“This is important because if it does turn out that the revenue targets are not met, then that could mean that the financing requirements are more than budgeted. And if the financing requirements exceed what’s budgeted, then that’s either going to create arrears pressures… or it could renew risks of recourse to things like deficit monetisation under large-scale Ways and Means,” he said.
Sienaert warned that although Nigerian authorities had pledged not to resort to the CBN’s overdraft facility, doing so again could derail the country’s fragile macroeconomic recovery.
“The authorities have been very clear that they will by no means be going back to large-scale use of Ways and Means, but were that to happen, it would be just extremely disruptive to the whole rebuilding of confidence in fiscal sustainability and in the naira ultimately,” he noted.
On broader fiscal matters, the World Bank called on the Federal Government to eliminate the electricity subsidy, which it described as a “wasteful, regressive subsidy.”
Sienaert said key fiscal reforms such as the removal of the petrol subsidy and the adoption of a market-reflective exchange rate had helped improve the government’s fiscal position, but further reforms were needed.
“There’s still a range of fiscal policy and fiscal management issues where more can be done to safeguard the gains that have already been achieved… just to name, there is still one kind of wasteful regressive subsidy, which is the electricity subsidy. So work to address that,” he said.
He also advocated for improved oil revenue transparency and a reduction in the cost of governance, saying efforts to increase non-oil revenue must continue.
Sienaert noted that although the Nigerian National Petroleum Company Limited began applying official exchange rates for fiscal transactions in October 2023, only half of the revenue gains from the subsidy removal had been remitted to the Federation Account by January 2025.
“It’s just going to be important in the coming months to keep tracking this, and ultimately that the full revenue gains from the difficult job of eliminating the subsidy do flow to the Federation so that that can support a continued healthy fiscal picture and, in turn, spending on development priorities,” he said.
On inflation, the World Bank economist said monetary policy reforms had helped reduce inflationary pressures but noted that consumer prices remained high.
“We do need to acknowledge that price pressures remain elevated,” he said. “The battle against inflation continues, and to extend the military analogy a little bit, there’s a kind of fog of war… quite dense just at the moment.”
He added that recent changes to the Consumer Price Index by the National Bureau of Statistics had made it difficult to determine the current trend in inflation, noting, however, that continued coordination between fiscal and monetary authorities would be critical to restoring confidence.
The World Bank further urged the government to ramp up implementation of its targeted cash transfer programme aimed at cushioning the cost of reforms on poor households. The programme currently offers N25,000 monthly for three months to 15 million recipients.
“The implementation has just been quite slow. So only about a third of those recipients have received transfers so far. The good news is that this is being scaled up… and just important that that effort really continues so that as many people as possible get help,” Sienaert said.
Looking ahead, he called for a new growth strategy based on a “private-led, public-facilitated” model.
The World Bank also stressed the need to reduce costs of governance, including cutting “wasteful expenditures that are not essential, such as purchase of vehicles, external training, etc.” and reducing “the cost of collection of GOEs (FIRS, NCS, NMDPRA, NUPRC, etc.).”
He emphasised the need for increased investment in education and health, noting that Nigeria’s combined spending in these sectors remained among the lowest globally.
“In 2022, Nigeria was only spending 1.2 per cent of GDP on education and 1.8 per cent on health, or $23 per Nigerian per year on education, $15 per Nigerian per year on health,” he said.
He said private sector growth must also be supported by improving the competitive landscape and reviewing trade policies that restrict access to essential production inputs.
“Competition is like the sort of secret sauce that drives innovation and economic transformation. And in Nigeria, there’s some evidence… that actually there are elements of competition policy, and there are conditions that are needed for good competition that actually even compared to some of Nigeria’s immediate peers… the Nigerian competitive landscape lags some of those,” he said.
The Bank believes that following through with these reforms will position Nigeria to achieve its goal of becoming a $1tn economy by 2030.
The Naira depreciated to N1,600 per dollar in the Nigerian Foreign Exchange Market (NFEM) today after three months of being on the N1,500 per dollar threshold.
Data published by the Central Bank of Nigeria, CBN, showed that the indicative exchange rate for the naira rose to N1,600 per dollar from N1,569 per dollar on Thursday, indicating N31 depreciation for the naira.
Likewise, the naira depreciated to N1,565 per dollar in the parallel market from N1,555 per dollar on Thursday.
Consequently, the margin between the parallel market and NFEM rate widened to N35 per dollar from N14 per dollar on Thursday.
Vanguard News
Fasua, who spoke on the Mic On Podcast hosted by Seun Okinbaloye on Saturday, also addressed how poverty is measured globally, saying many Nigerians misunderstand what is termed “multi-dimensional poverty.”
He said, “Some people don’t understand the meaning of multi-dimensional poverty.
“They think multi-dimensional poverty is worse than food poverty. What multi-dimensional means is that maybe the school your children attend is too far from you, or the hospital, and they categorise you as multi-dimensional.”
“$1 is N1,500 – it’s a lot of money for many people in Nigeria. $10 won’t buy you lunch anywhere in the US, sometimes you need at least $20, that is N30,000 in Nigeria,” Fasua stated.
Offering examples from everyday life, Fasua added, “I will tell you what you can do with $5 – that is N7,500 – if you are not going to eat in some highbrow places. In Gwarinpa, there are some people that sell Boli and fish and you will eat for N1,500. If you know where you are coming from.
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