How FG’s Subsidy Palliative Loans of N69.12bn Will Increase States’ Debt to N1.34tn
The Federal Government has offered a subsidy palliative loan of N5bn to each of the 36 states and the Federal Capital Territory to mitigate the impact of the removal of petrol subsidy.
This loan, which is interest-free and has a three-month moratorium, will add N69.12bn to the existing debt of the states under the budget support facility of the Federal Government.
The budget support facility is a loan scheme that the Federal Government initiated in 2017 to help the states meet their financial obligations, especially salaries and pensions.
As of 2019, the total debt owed by the 36 states to the Federal Government under this facility was N614bn.
In November 2021, former President Muhammadu Buhari approved another N656bn bridge financing facility for the 36 states, with each state receiving N18.2bn at an interest rate of nine per cent and a two-year moratorium.
With the addition of the subsidy palliative loan, the total debt of the states to the Federal Government under the budget support facility will rise to N1.34tn.
This debt is separate from the states’ domestic debt of N5.48tn as of March 2023 and external debt of $4.4bn as of December 31, 2022, as recorded by the Debt Management Office.
The subsidy palliative loan is optional and states that do not wish to participate may opt out and refund the N2bn already disbursed to them.
The loan is meant to cushion the effect of the petrol subsidy removal, which has led to multiple increases in fuel pump prices and inflation in the country.
According to findings by The PUNCH, revealed that the states already owe the Federal Government N614 billion under a budget support facility, and another N656 billion under a bridge financing facility.
The fresh loan, which is interest-free and has a repayment period of 20 months, is expected to be used by the states to cushion the impact of the removal of fuel subsidy.
However, some analysts have expressed concern over the sustainability and transparency of the loan scheme, as well as its impact on the fiscal autonomy and accountability of the states.
Experts have warned that the loan could further worsen the states’ financial problems, as they are already struggling to repay their existing debts.
They also expressed concern that the money could be diverted to other purposes, such as paying salaries or servicing other debts.
In the meantime, the fresh N69.12 billion loan is expected to add to their debt burden.
This is a worrying development, as it could further constrain the states’ ability to provide essential services to their citizens.
The experts have called on the Federal Government to provide more financial support to the states to enable them to repay their debts and provide basic services to their citizens.
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