By David Akinmola
The Central Bank of Nigeria (CBN) has cautioned state governments against excessive dependence on short-term borrowing, warning that the growing debt profile of sub-national governments could worsen fiscal pressures and undermine economic stability.
The apex bank said many states were increasingly relying on short-term facilities to finance recurrent expenditure and bridge revenue gaps, a trend it described as unsustainable in the face of prevailing macroeconomic challenges.
The CBN noted that while borrowing remains an important tool for financing development projects, loans must be tied to productive investments capable of generating economic returns and improving revenue capacity.
Financial experts said the warning comes amid rising concerns over the debt sustainability of several states struggling with declining internally generated revenue and mounting obligations.
According to analysts, excessive short-term borrowing exposes states to refinancing risks, higher debt servicing costs and liquidity challenges that could affect salary payments and capital project execution.
The apex bank urged state governments to strengthen fiscal discipline, improve revenue generation and adopt prudent debt management strategies to reduce dependence on expensive short-term credit facilities.
It also stressed the need for states to prioritise infrastructure, agriculture and other productive sectors capable of stimulating economic growth and expanding their revenue base.
The development comes as sub-national governments continue to grapple with inflationary pressures, foreign exchange volatility and rising expenditure obligations despite increased allocations from the Federation Account Allocation Committee (FAAC).
Economic analysts warned that unchecked borrowing by states could further strain the country’s financial system and weaken investor confidence if not properly managed.
