Nigerian states and the Federal Capital Territory (FCT) significantly ramped up their foreign borrowing in 2025, with 32 states and the FCT collectively taking on fresh external loans amounting to $944.12 million.
According to data from the Debt Management Office (DMO), the total external debt stock of subnational governments rose from $4.80 billion at the end of 2024 to $5.68 billion by December 31, 2025. This represents a substantial 18.43% year-on-year increase.
The sharp rise in borrowing occurred despite four states Edo, Rivers, Anambra, and Bayelsa reducing their external debt by a combined $59.46 million. Without these reductions, the overall increase in subnational foreign debt would have approached $1 billion.
Dominance of Multilateral Loans
The bulk of the debt remains multilateral, accounting for $5.25 billion or 92.42% of the total subnational external debt. Bilateral loans made up the remaining $430.96 million (7.58%). Notably, states and the FCT recorded no commercial debts, Eurobonds, or other market-based borrowings during the period.
This heavy reliance on multilateral institutions such as the World Bank, African Development Bank, and other development partners suggests that most of these loans are tied to specific infrastructure and development projects.
Top Borrowers
Katsina State led the pack with the largest absolute increase, adding $100.16 million to its external debt, nearly doubling its stock from $100.46 million to $200.62 million. Other states with significant increases include:
– Niger State: +$73.38 million
– Kogi State: +$66.08 million
– Plateau State: +$60.24 million (highest percentage increase at 187.24%)
– Kaduna State: +$59.19 million
In percentage terms, Plateau, Gombe, Yobe, Benue, and Kogi recorded the most aggressive growth in external debt.
Lagos State remains the most indebted subnational government, with an external debt stock of $1.17 billion, followed by Kaduna ($684.29 million) and Edo ($354.03 million).
Implications
The surge in subnational foreign borrowing highlights growing fiscal pressure on state governments amid rising expenditure needs and relatively constrained internally generated revenue. While multilateral loans often come with concessional terms, the rapid accumulation raises concerns about long-term debt sustainability, especially if naira depreciation continues or revenue projections fall short.
States and the FCT now account for 12% of Nigeria’s total external debt, up from 10% the previous year. This gradual shift places more foreign exchange repayment obligations on subnational budgets.
Analysts warn that without corresponding improvements in revenue generation and project execution efficiency, the rising debt service burden could limit future fiscal space for many states.
The data reflects a clear divergence in fiscal strategy among states, with some aggressively leveraging external financing for development while a few others actively reduce their foreign debt exposure.
This trend is expected to remain a key focus area for policymakers and investors monitoring Nigeria’s overall public debt dynamics in 2026.
