By Sodiq Adelakun
Despite the persistent fall of the naira, twenty-three Nigerian states have seen a significant increase in bilateral loans, growing by 64.26 per cent to reach $462.81 million as of June 2023.
These loans, primarily sourced from countries like China, India, France, and others, highlight the growing appetite for this type of borrowing among state governors.
However, concerns have been raised about the implications of this trend, especially considering the depreciating value of the naira.
The fall of the naira has made dollar-denominated loans more expensive for Nigeria.
In June 2023, the Central Bank of Nigeria removed the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market. As a result, the naira depreciated from 471/$ to 750/$ by the end of June 2023, and the downward trend has continued.
This depreciation has increased the burden of servicing bilateral loans, raising questions about the sustainability of the borrowing spree.
According to data from the Debt Management Office, the majority of bilateral loans were owed to the Agence Francaise Development (AFD) of France, with debt to France growing by 21.84 per cent to $306.32 million as of June.
Loans from China (Exim Bank of China), India, and other countries also increased by 415.79 per cent to $156.49 million during the same period. This indicates a diverse range of borrowing sources, reflecting Nigeria’s efforts to secure funding for various development projects.
A breakdown of the states reveals varying levels of bilateral borrowing. Some states, like Cross River, experienced a decrease in bilateral loans, while others, such as Ebonyi, secured their first-time bilateral loan of $31.29 million.
Notably, Kaduna state saw a significant increase in its loan amount, reaching $91.47 million. Lagos state, being the economic hub of Nigeria, had the highest bilateral loan profile at $130.67 million.
These figures highlight the differing borrowing needs and strategies of individual states.
Concerns and implications
The growing appetite for bilateral loans among Nigerian states raises concerns about the sustainability of debt repayment.
With the naira’s depreciation, the burden of servicing these loans will only increase, potentially straining state finances.
In the same vein, there is a need for transparency and accountability in the utilisation of borrowed funds to ensure that they are channelled towards productive projects that benefit the citizens.