Forex crisis: Three states request a suspension of the $501 million loan repayment

Because of the extreme fluctuations in foreign money, the state administrations of Ekiti, Cross River, and Ogun have suggested deferring the $501 million repayment of their international loan.

The plan is a component of their attempts to lessen the increased debt service obligations, which they said have made it much more difficult for them to pay down current debts, according to state officials.

According to checks our correspondent received from the Debt Management Office, the three states were among the top 10 states with the greatest stock of foreign debt as of December 2023 because they had received bilateral and multilateral loans.

With $211.13 million, Cross Rivers has the most, followed by Ogun ($168.8 million) and Ekiti ($121.1 million).

The Federal Account Allocation Committee meeting minutes from March 2024 detailed these recommendations in detail.

Akintunde Oyebode, the Commissioner of Finance for Ekiti State, mentioned during the meeting that the expenses associated with repaying foreign debts had increased due to financial strain brought on by rising currency rates.

He claimed that their portion of the Federation Account had been significantly decreased by the expense of servicing foreign debt, and in order to solve these issues, he argued for a thorough debate on exchange rates and multilateral funding.

Oyebode added that the state balances had been severely depleted by large deductions for savings from the statutory revenue.

The minutes of the meeting read in part, “The HCF, Ekiti State observed that there had been significant increases in the amounts deducted from the Statutory Revenue of the states for repayment of foreign loans due to the rising exchange rate. He, therefore, suggested the need for extensive discussion on exchange rates concerning multilateral financing to address the issue. Furthermore, he raised concerns about the amount deducted as savings from the revenue for the month and noted that the balances of the Sub-nationals had reduced tremendously as a result.”

Similar concerns were voiced by Cross River State’s Commissioner of Finance, Michael Odere, regarding the state’s capacity to finance capital projects in light of declining revenue.

In particular, he proposed suspending the deductions for multilateral loan repayments when distributable revenue is low.

Odere also suggested scheduling pre-FAAC stakeholder gatherings in order to improve the management of financial distributions during times of budget deficit.

Dapo Okubadejo, the Ogun State Commissioner of Finance, demanded that the N200 billion that had been set aside as savings be transferred back into the federal account so that the states may share it out.

It added, “The HCF, Cross River State expressed fear that the States might not be able to fund capital projects as a result of a reduction in revenue. He advised that given the tight financial situation of the Sub-nationals, some of the proposed deductions should be suspended including repayment for multilateral loans. He also advised that whenever the total distributable revenue was low, a pre-FAAC meeting should be arranged with stakeholders to discuss ways to manage the situation.

“The HCF, Ogun States on his part, proposed that the N200 billion set aside as savings should be returned to the Federation Account for distribution to the beneficiaries. On the issue of multilateral financing, he proposed that a system should be put in place to effectively address issues associated with foreign exchange volatility. The HCF, Enugu State noted that if more funds were made available to States for infrastructural development, the revenue earnings of the States would increase.”

He pointed out that by taking this action, the nations would be better equipped to manage the volatility of foreign exchange rates that affects multilateral finance, as well as aid to relieve financial suffering and promote essential infrastructure investments.

In his remarks, Omowumi Isaac, the financial commissioner for Ondo State, bemoaned the amount of money taken out of the account for the month, pointing out that this left the federation with insufficient revenue. He also recommended that some of the money be taken back.

The meeting’s chairman, Olawale Edun, the minister of finance, addressed these worries in response to the request by pointing out that the National Economic Council was still debating issues including interest rates, foreign exchange, and other economic difficulties.

He asked the states to communicate their concerns to their governors or chief executives so that they can be carefully considered.

In these difficult economic circumstances, Edun also emphasized the necessity of improved collaboration between the fiscal and monetary authorities to promote national development.

According to recent disclosures from the DMO, the combined external debt stock of the 36 states and the Federal Capital Territory increased from $4.46 billion to $4.61 billion by December 31, 2023. The 36 states’ combined foreign debt, including that of the Federal Capital, rose by $150 million, or around 3.36 percent, in just a single year.

The states’ allotment for external debt servicing was N120.01 billion in 2023 and N30 billion in January and February of 2024. This was a 54% increase (or N42.01 billion) over the N78 billion that was subtracted in 2022.