The Nigeria Extractive Industries Transparency Initiative (NEITI) has sounded a strong alarm over what it describes as a “silent fiscal emergency” in Nigeria’s states, warning that excessive debt servicing is quietly draining funds meant for grassroots development, infrastructure, and essential public services.
In its newly released Policy Brief titled “Beyond Federal Allocations: The Cost of Borrowings and Debt Servicing at State Level in Nigeria”, NEITI revealed that between 10% and 30% of monthly Federation Account allocations are being automatically deducted in many states to repay debts—money that could otherwise go towards schools, hospitals, roads, and poverty alleviation programmes.
The 2024 data paints a stark picture:
Kaduna State tops the chart with 32.06% of its allocation (₦51.2bn out of ₦159.7bn) deducted for debt servicing.
Ogun State follows closely with 27%,
Bauchi at 26%, and
Cross River at 24%.
In contrast, states with minimal debt exposure—Borno (2.63%), Jigawa (2.74%), Benue (3.58%), and Nasarawa (3.82%)—retain over 95% of their monthly allocations for direct development spending, reflecting more disciplined borrowing and fiscal management.
NEITI’s brief goes beyond traditional loans, warning of “hidden liabilities” tied to poorly disclosed Public-Private Partnership (PPP) projects. For example:
Ogun State has ₦6bn in contractual obligations.
Ondo State owes ₦7.73bn under similar arrangements.
Eighteen states—including Abia, Adamawa, and Akwa Ibom—reported zero contractual deductions, showing that cautious and transparent approaches to PPP agreements can protect fiscal space.
The report also underscores regional imbalances. In 2024:
Delta State received ₦581.27bn from the Federation Account—more than five times the ₦108.32bn allocated to Nasarawa.
When high-debt states with already smaller allocations lose a quarter or more of their funds to debt repayments, the impact on local development can be devastating.
To prevent further erosion of state finances, NEITI has put forward a series of reform measures:
Establish State Debt Management Offices (DMOs) in all 36 states.
Mandate real-time debt reporting and quarterly public disclosures.
Tie federal bailouts to improved internally generated revenue (IGR) performance and transparency commitments.
Revise the revenue allocation formula to reduce extreme disparities between states.
Cap contractual deductions and ensure all loan and PPP terms are publicly disclosed.
NEITI’s Executive Secretary, Dr. Orji Ogbonnaya Orji, emphasised that the report is not about “naming and shaming,” but rather a wake-up call.
“Debt, when managed well, can drive development. But when up to a third of revenues go into servicing obligations, it becomes a threat to public service delivery and economic stability,” he said.
Economic analysts have echoed NEITI’s concerns, warning that states overly dependent on debt are leaving themselves vulnerable to fiscal shocks, especially if oil revenues—which form the backbone of Federation Account allocations—fall below projections.
Dr. Ayodele Olatunji, a fiscal policy expert, noted:
“The danger is that debt servicing is becoming a fixed cost for many states, meaning even if allocations rise, a huge chunk never reaches local communities. This is a structural issue that demands urgent intervention.”
For rural communities, the effects of debt overhang are tangible: delayed road projects, underfunded healthcare centres, unpaid teacher salaries, and abandoned water schemes. In many cases, governors have little fiscal room to respond to emergencies without resorting to more borrowing, deepening the cycle.
With the Federal Government already grappling with its own debt burden, NEITI’s policy brief serves as a timely warning: without stronger fiscal discipline, transparent borrowing, and better revenue diversification, Nigeria’s states risk a debt trap that could stall development for years to come.