State Governments Borrow N46.17bn from Banks to Cover Salaries Amid Revenue Shortfalls

In a concerning trend, state governments in Nigeria have resorted to borrowing approximately N46.17 billion from commercial banks to meet their salary obligations in the first half of 2023, according to a comprehensive analysis of the financial statements of Access Bank, Fidelity Bank, and Zenith Bank Group.

Access Bank emerged as the primary source of these loans, extending N42.97 billion in salary bailout funds to various states within this six-month period. Zenith Bank followed suit, with N1.78 billion in loans, while Fidelity Bank provided N1.42 billion.

Investigation revealed that despite a slight increase in revenue allocation to states, approximately 25 Nigerian states faced declining internally generated revenues, leading to cash flow challenges in the first quarter of 2023.

These states collectively saw a 16.99% revenue underperformance against their targets.

This borrowing trend comes as state governments’ indebtedness to commercial banks reached N2.2 trillion, according to data from the Central Bank of Nigeria’s quarterly statistical bulletin.

Economic experts, including Prof. Akpan Ekpo, have expressed concerns about the practice of borrowing to cover recurrent expenditures such as salaries, explaining the need for states to focus on increasing internally generated revenue and financing capital projects instead.

Dr. Aliyu Ilias echoed these concerns, stating that while borrowing might be necessary in the current economic climate, it should be channeled toward capital expenditures to prevent exacerbating the debt crisis.

The rising debt levels and continued borrowing for operational expenses underscore the urgent need for state governments to diversify revenue streams and implement fiscal discipline to ensure long-term financial sustainability and resilience.