Despite enjoying increased disbursements from the Federation Account Allocation Committee (FAAC) in the past year, at least 10 Nigerian states have added a staggering N417.7 billion to their domestic debt stock, raising fresh concerns about fiscal discipline and long-term financial sustainability at the subnational level.
An analysis of Debt Management Office (DMO) reports for Q1 2025 reveals that Rivers, Enugu, Niger, Taraba, Bauchi, Benue, Gombe, Edo, Kwara, and Nasarawa states collectively increased their debt stock from N884.9 billion in Q1 2024 to N1.3 trillion in Q1 2025 — representing a 47.2% year-on-year surge.
This significant spike in borrowing occurred despite improved revenue inflows from FAAC, buoyed by high global oil prices, the naira devaluation, and savings from petrol subsidy removal. Experts say this suggests that states are failing to harness increased revenues to reduce debt burdens, and are instead deepening their reliance on borrowing.
Rivers State recorded the highest domestic debt among the 10 states, with a figure of N364.39 billion, unchanged quarter-on-quarter but up 56.7% from N232.58 billion in Q1 2024. Notably, this figure reflects data from December 2024, not Q1 2025, due to delays in reporting.
Enugu State followed closely, more than doubling its debt to N188.42 billion, up from N82.48 billion a year earlier. The state posted the most significant quarterly increase among all 10 states, adding N69.14 billion between December 2024 and March 2025.
Taraba also saw an alarming jump of 154.1%, increasing its debt from N32.64 billion to N82.93 billion within a year. Niger, Bauchi, and Benue also reported sizeable year-on-year increases, highlighting a growing dependence on debt across many states.
Interestingly, Edo and Gombe showed some fiscal restraint. Edo reduced its debt from N113 billion in Q4 2024 to N82.40 billion in Q1 2025, possibly due to active debt repayment. Gombe, too, recorded a quarter-on-quarter decline from N89.24 billion to N83.66 billion.
Yet, despite these efforts, the 10 states now account for over 33.6% of the combined N3.87 trillion domestic debt of all Nigerian states and the FCT — up from just 21.8% in Q1 2024.
Analysts have warned that the rising debt profile of states could choke capital and social spending, especially as debt servicing costs continue to balloon.
According to analysis, seven states — including Bayelsa, Adamawa, Benue, Niger, Kogi, Taraba, and Bauchi — spent an average of 190% of their Internally Generated Revenue (IGR) on debt servicing in Q1 2025. In some states, debt servicing exceeded IGR by over 300%.
The combined debt servicing cost for the seven states rose sharply to N98.71 billion, up 51% from N65.24 billion in the preceding quarter (Q4 2024).
Economist and Proshare Nigeria Chief, Teslim Shitta-Bey, noted that the fiscal mismanagement is systemic. “Borrowing may look like a convenient fix, but without a solid balance sheet and revenue base, it becomes unsustainable,” he said.
He urged states to tap into equity-style financing, develop a register of dormant national assets, and promote revenue-generating instruments like state-backed revenue bonds.
Lagos-based economist Adewale Abimbola emphasized the structural weakness of most Nigerian states, calling them “economically unviable” and “over-reliant on FAAC.”
According to him, states must explore their comparative advantages, stimulate private sector engagement, and create a more investment-friendly climate by removing bureaucratic bottlenecks.
“Governors know what to do, but the political will is absent,” Abimbola said, noting that the 2025 governance climate has been compromised by early positioning for the 2027 elections.
Another macroeconomic analyst, Dayo Adenubi, recommended boosting consumption levels and VAT collections, alongside property and transport-related tax reforms to enhance IGR.
As Nigeria’s 10 most indebted states continue to borrow despite revenue improvements, the spotlight is back on fiscal transparency, sustainable budgeting, and debt accountability at the state level. With debt servicing costs mounting and economic viability in question, stakeholders warn that without urgent reform, Nigeria’s subnational finances could be heading for deeper trouble.
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