Kaduna State’s Looming Debt Trap: A Call To Action For Fiscal Sustainability

By Yusuf Ishaku Goje

NEWSDAILYNIGERIA: Kaduna State is facing an unsustainable rise in external debt, with the second-highest debt burden in the country. As of December 31, 2024, according to the Debt Management Office (DMO) – Nigeria, the state’s external debt stood at $625,1 million, equivalent to approximately N959.02 billion (at an exchange rate of N1,535). This alarming trend is a stark reminder of the need for proactive measures to mitigate the risk of a debt trap.

A closer look at the debt stock reveals a concerning pattern. In December 2022, the external debt stood at $573.7 million, which reduced to $569.4 million in June 2023 and then increased to $587.1 million by December 2023. However, the debt sharply increased to $640.9 million in June 2024, before reducing to $625.1 million in December 2024. This represents a percentage increase of 8.95%. Between 2022 to 2023, the debt stock increased by $67.2 million, before reducing to $51.4 million in 2024.

The upward trend in external debt is mirrored in increasing debt service costs. In 2023, the state spent N67.46 billion on debt service, which reduced to N53.67 billion in 2024. However, the approved budget for 2025 indicates a sharp increase to N70.87 billion. The trend over the past two years shows that the actual debt service had surpassed the budgeted amount, highlighting the need for effective debt management.

The Kaduna State MTEF 2025-2027 reveals a concerning trend, with the state exceeding nearly all sustainability thresholds, solvency ratios, and liquidity ratios, with the sole exception of Total Domestic Debt/IGR. This is a clear indication that the state’s debt profile is becoming increasingly unsustainable. As to the quality, in terms of value for money/return on investment, of the utilization of the borrowings, this is another topic for discussion that deserves equal attention.

Furthermore, Kaduna State’s 2024 Debt Sustainability Analysis and Debt Management Strategy Report indicates that the State has already exceeded the total planned borrowing (2024-2033) forecasts for 2024 and 2025. This underscores the urgent need for proactive measures to mitigate the risk of a debt crisis. To address this challenge, this submission advocates for empowering the Debt Management Department to oversee debt utilization and advise on strategic restructuring and refinancing of all debt obligations. This is critical to ensuring fiscal sustainability and preventing a debt crisis.

Therefore, there is the need to further strengthen systems for effective debt management in Kaduna State, ensuring the Debt Management Committee is fully constituted in line with the law. Additionally, we suggest reviewing and amending the Debt Management Law of 2015 to transform it into a semi-autonomous agency under the Office of the Governor. This will enhance the committee’s autonomy and decision-making capacity.

Also, it is imperative to assess and review the State Public Debt Policy to align with current realities and creditor priorities. Strengthening the technical capacity of the Debt Management Department (DMD) is crucial to provide reliable forecasts of borrowing capability. Furthermore, reviewing and amending the Fiscal Responsibility Law of 2016 will ensure enforcement of fiscal discipline and strict borrowing practices that create assets with a return on investment. Lastly, developing a comprehensive roadmap for a sustainable debt position in line with Debt Management Office (DMO) criteria and the State Arrears Clearance Framework will guide the state’s debt management strategy.

The time to act is now. Kaduna State’s fiscal sustainability hinges on effective debt management, and we urge policymakers to take proactive measures to address this challenge. This is more so as our 2025 approved debt service of N70.87 billion is higher than the 2024 full-year IGR performance of N70.22 billion. We should not get carried away by the increase in statutory allocations, as the global economy remains vulnerable. Hence, by strengthening systems for effective debt management, Kaduna State can ensure fiscal sustainability and prevent a debt crisis.

It is imperative that policymakers take immediate action to address this challenge and secure a brighter future for the state. The consequences of inaction will be severe, and it is only by working together that we can ensure a sustainable future for Kaduna State. We must act now to prevent a debt crisis and ensure that the state’s debt profile is managed in a sustainable and responsible manner.

Lets engage, ask the right questions and hold the government accountable.

Goje is an active citizen, civil society member and OGP enthusiast