Nigerian states spent N235.58 billion servicing external debts in the first half of 2025, a 68.4% increase from N139.92 billion in the same period of 2024, according to data from the National Bureau of Statistics’ Federal Account Allocation Committee (FAAC) disbursements. The rise, driven by naira depreciation, underscores the growing burden of dollar-denominated debt on state finances.
Under an Irrevocable Standing Payment Order, the Federal Government handles external debt servicing for states, with deductions made from monthly FAAC allocations by the Office of the Accountant-General, Federal Ministry of Finance, and Central Bank of Nigeria. January 2025 saw a peak repayment of N40.09 billion, a 305% jump from N9.88 billion in January 2024. February and March recorded N39.10 billion each, with February up 59.5% from N24.53 billion in 2024, while April to June consistently posted N39.10 billion monthly, an 80.1% rise from N21.70 billion in 2024.
Lagos State led with N49.58 billion, a 52.8% increase from N32.44 billion, reflecting its heavy borrowing for infrastructure. Rivers State followed with N26.34 billion, up 470% from N4.62 billion, while Kaduna, Ogun, and Edo paid N24.47 billion, N12.57 billion, and N10.18 billion, respectively. These five states accounted for 52.3% of total repayments. Jigawa, Benue, and Yobe had the lowest at N1.39 billion, N1.44 billion, and N1.46 billion, though increases ranged from 54.3% to 77.0%.
The naira’s weakness has inflated repayment costs, straining state budgets, especially for those with low internally generated revenue (IGR). Seven states spent 190% of their IGR on debt servicing in Q1 2025, with a 51% quarter-on-quarter rise to N98.71 billion. Economists, including Teslim Shitta-Bey of Proshare Nigeria, warn that rising debt burdens threaten fiscal stability. Shitta-Bey advocates for revenue bonds and better asset management over borrowing. Dayo Adenubi, a macroeconomist, urges states to boost IGR through taxes like VAT and property levies to ease reliance on federal allocations.
The Nigeria Extractive Industries Transparency Initiative noted that high debt ratios in states with lower FAAC allocations raise concerns about fiscal sustainability, limiting funds for essential services and infrastructure. As states navigate these challenges, strategic revenue generation remains critical to managing debt pressures.
