States pay N455bn to service foreign loans as debt deductions tighten fiscal space
Nigeria’s 36 states collectively surrendered N455.38bn from their Federation Accounts Allocation Committee (FAAC) inflows in 2025 to meet external debt obligations, reflecting a sharp rise in subnational foreign loan servicing pressures.
An analysis of official FAAC figures published by the National Bureau of Statistics shows that the amount states pay N455bn to service foreign loans in 2025 represents a N93.30bn increase over the N362.08bn recorded in 2024. The year-on-year growth of 25.77 per cent highlights how foreign debt repayments are consuming a growing share of states’ statutory allocations.
In practical terms, as states pay N455bn to service foreign loans, less revenue remains available for salaries, infrastructure development, healthcare, education, and other core governance functions. The deductions are made at source under first-line charge arrangements, meaning repayment to external creditors is prioritised before funds reach state treasuries.
Monthly deduction pattern reveals step-down adjustments
A closer look at the 2025 monthly data indicates a structured pattern rather than volatile swings. In January 2025, total foreign debt service deductions stood at N40.09bn. This figure dipped slightly to N39.10bn in February, marking a 2.48 per cent reduction.
From March through July, deductions held steady at N39.10bn each month, suggesting predictable repayment schedules tied to agreed loan terms. In August, however, the figure dropped to N36.14bn — a 7.56 per cent decline from July. That lower threshold persisted through the final four months of the year.
By contrast, 2024 showed more dramatic fluctuations. Deductions started at N9.88bn in January before jumping to N24.53bn in February and peaking at N40.41bn in March. The total then fell to N21.70bn in April and remained flat until July. A second spike occurred in August 2024, when deductions rose to N40.09bn and held steady through December.
The comparison underscores that while states pay N455bn to service foreign loans in 2025, the year was marked by relative stability after initial adjustments.
Lagos, Rivers, Kaduna lead debt service burden
The debt service profile remains highly concentrated among a handful of large borrowers. The top 10 states accounted for roughly 68.57 per cent of the total deductions in 2025.
Lagos recorded the highest foreign debt service at N92.80bn, up from N72.32bn in 2024. The N20.49bn increase represents a 28.33 per cent rise year-on-year, meaning Lagos alone accounted for over one-fifth of the total amount states pay N455bn to service foreign loans.
Rivers followed with N48.58bn in 2025, more than double its N23.13bn in 2024 — a 110.02 per cent increase. Ogun also saw its debt service obligations more than double, rising from N11.99bn in 2024 to N25.20bn in 2025.
Kaduna posted N47.93bn in 2025, compared to N45.59bn the previous year, while Cross River recorded N21.01bn, up from N17.10bn. Oyo, Edo, Bauchi, Kano, and Ebonyi rounded out the top 10, each posting multi-billion-naira increases.
The data illustrates how the burden is skewed toward economically larger or more externally exposed states. As states pay N455bn to service foreign loans, fiscal vulnerability becomes more pronounced in jurisdictions with high debt-to-revenue ratios.
Regional distribution highlights South-West dominance
Geopolitical analysis further shows regional concentration. The South-West recorded the highest foreign debt service deductions at N162.77bn in 2025, accounting for 35.74 per cent of the national total. Lagos, Ogun, and Oyo were primary contributors to the zone’s exposure.
The South-South followed with N100.37bn, representing 22.04 per cent of total deductions. Rivers, Edo, and Cross River were significant drivers within the region.
The North-West accounted for N81.97bn (18.00 per cent), led by Kaduna and Kano. The North-East posted N42.42bn (9.32 per cent), while the South-East recorded N40.20bn (8.83 per cent). The North Central had the lowest total at N27.65bn (6.07 per cent).
These figures confirm that while states pay N455bn to service foreign loans nationally, the fiscal impact varies widely by region, depending on borrowing history and project financing structures.
Fiscal sustainability concerns deepen
Policy analysts warn that rising external debt service obligations could crowd out capital expenditure, especially in states heavily reliant on FAAC transfers.
A recent report by the Nigeria Extractive Industries Transparency Initiative noted that several states with high debt service burdens rank lower in overall FAAC allocations, raising concerns about fiscal sustainability.
Economists argue that unless internally generated revenue (IGR) improves significantly, the trend in which states pay N455bn to service foreign loans could intensify pressure on recurrent expenditure and social services.
Teslim Shitta-Bey, Director and Chief Economist at Proshare Nigeria LLC, has cautioned that many subnational governments have not effectively managed their balance sheets. He noted that borrowing should not be the default strategy for funding operations.
According to him, states should consider longer-tenor debt structures and explore revenue-backed instruments rather than relying primarily on general obligation bonds. He also advocated the creation of a comprehensive national asset register to unlock value from underutilised public assets.
Revenue mobilisation as a corrective lever
Macroeconomic analysts stress that improving tax administration remains critical. Expanding consumption to boost Value Added Tax collections, enforcing property taxes, and tightening transport-related levies are among recommended measures.
However, experts also emphasise that citizens’ willingness to comply with taxation depends on visible improvements in service delivery. Without credible governance outcomes, efforts to raise revenue may face resistance.
As states pay N455bn to service foreign loans, the debate increasingly centres on the balance between prudent borrowing and sustainable revenue growth. While external financing has enabled infrastructure development in some states, the rising repayment burden underscores the need for stronger fiscal discipline.
Going forward, the trajectory of external debt service will depend on exchange rate dynamics, refinancing strategies, and the maturity structure of existing loans.
With foreign-denominated debt exposed to currency fluctuations, volatility in the naira could further inflate repayment costs.
For now, the reality remains that states pay N455bn to service foreign loans in 2025 — a figure that reflects both development financing ambitions and the mounting cost of debt sustainability.
If revenue expansion and expenditure reforms do not keep pace, subnational governments may find their fiscal space narrowing further, with long-term implications for public investment and economic growth.
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