Bilateral borrowing of Nigerian States climbed by 64.26% in just six months amid the decline in the Nigeran naira value.
This surge, totaling a significant $462.81 million, has raised eyebrows as it coincides with the continuous depreciation of the national currency, the naira.
Despite the economic challenges posed by the falling naira, state governments across Nigeria seem undeterred in their pursuit of much-needed funds. Loans have been secured from various international sources, including China, India, France, and other countries, demonstrating their resourcefulness and commitment to development.
The naira’s decline in value has made dollar-denominated loans more expensive, making the decision to seek bilateral loans an even bolder move.
The Central Bank of Nigeria’s directive to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market in June 2023 exacerbated the situation.
Consequently, the naira’s exchange rate plunged from 471/$ to 750/$ by the end of June 2023 and has continued its downward trajectory.
This increasing reliance on bilateral loans indicates a growing appetite among state governors for this type of financing. Data from the Debt Management Office reveals that 23 states have significantly ramped up their borrowing from a variety of international lenders, including China’s Exim Bank, India, France’s Agence Francaise Development, Japan International Cooperation Agency, and Germany’s Kreditanstalt Fur Wiederaufbua.
France’s Agence Francaise Development (AFD) remains a significant contributor to these bilateral loans, with debts to France surging by 21.84% to reach $306.32 million as of the end of June.
Also, loans from China, India, and other sources have experienced a staggering 415.79% increase, amounting to $156.49 million as of June 2023.
As we delve deeper into the specifics, it becomes evident that various states have taken diverse approaches to meet their financing needs. Some states, such as Abia, Adamawa, Akwa Ibom, Bauchi, Kebbi, Kogi, Kwara, Oyo, and Sokoto, maintained their bilateral loan profiles at $3.82 million. Others, like Cross River and Ebonyi, witnessed changes in their borrowing trends.
In the midst of this financial landscape, it’s important to note that in 2018, Nigeria secured a substantial $475 million loan from France to fund development projects in Kano, Lagos, and Ogun states. The agreement, signed by then Minister of Finance, Mrs. Kemi Adeosun, and the Chief Executive Officer of Agence Francaise Development, Mr. Rey Rioux, included allocations for critical projects such as transportation, land degradation, and water infrastructure.
The Nigerian states’ bold move to secure bilateral loans reflects their determination to drive development and economic growth, even in the face of currency challenges. This trend will undoubtedly shape the financial landscape and raise questions about the sustainability of such borrowing in the long run.