Several Nigerian states are carrying a heavy load, and a big part of that weight is priced in foreign currency. When a state's debt is denominated in dollars or other foreign currencies rather than naira, every shift in the exchange rate can quietly inflate what that state owes, even if it hasn't borrowed a single kobo more.
This exposure becomes especially painful during periods of naira depreciation, which Nigeria has seen in sharp bursts in recent years. A loan that looked manageable at one exchange rate can balloon dramatically when the naira weakens, stretching already tight state budgets and leaving less room for the services residents actually depend on.
The concern is not just about numbers on a balance sheet. States that are heavily exposed to exchange rate swings have less predictability in their fiscal planning, making it harder to commit to long-term infrastructure projects or social programs with any real confidence.
The question now is how state governments and federal oversight bodies respond. Whether through restructuring existing foreign currency obligations, hedging strategies, or simply being more cautious about the currency denomination of future borrowing, the decisions made in the coming months will shape how exposed these states remain going forward.
Originally published by BusinessDay.