12 Nigerian States Spend N117bn On Debt Servicing Amid Revenue Shortfalls.
Twelve Nigerian states collectively spent N117 billion on debt servicing in the first quarter of 2025, despite failing to meet their revenue targets, according to recent data from the Debt Management Office (DMO). The states, including Lagos, Rivers, and Enugu, faced significant fiscal challenges as rising debt obligations and economic pressures strained their budgets, highlighting concerns about fiscal sustainability in Nigeria’s subnational economies.
The DMO’s subnational debt reports reveal that these states, which also include Niger, Taraba, Bauchi, Benue, Gombe, Edo, Kwara, Nasarawa, and one other unnamed state, saw their domestic debt stock surge by 47.2% year-on-year, rising from N884.9 billion in Q1 2024 to N1.3 trillion in Q1 2025. This increase, coupled with a quarterly rise of N42.3 billion from Q4 2024, reflects a growing reliance on borrowing, despite higher revenues from the Federation Account Allocation Committee (FAAC) driven by increased crude oil prices, petrol subsidy removal, and naira devaluation. Lagos, Nigeria’s commercial hub, alone spent a significant portion of the N117 billion, underscoring the scale of its financial commitments.
Fiscal analysts have raised alarms over the sustainability of this trend, noting that debt servicing costs are consuming an ever-larger share of state revenues. For instance, seven of these states—Bayas, Adamawa, Benue, Niger, Kogi, Taraba, and Bauchi—spent an average of 190% of their Internally Generated Revenue (IGR) on debt servicing in Q1 2025, a sharp 51% increase from the N65.24 billion recorded in Q4 2024. Teslim Shitta-Bey, Chief Economist at Proshare Nigeria, cautioned that without robust repayment and investment plans, such borrowing could lead to a debt trap, diverting funds from critical sectors like health, education, and infrastructure.
Despite the revenue boost from FAAC allocations, the failure to meet revenue targets has exacerbated fiscal strain. States like Edo and Gombe showed some fiscal restraint, but the broader trend suggests weak public finance management. Macroeconomic analyst Dayo Adenubi recommended increasing consumption to boost VAT collections and reduce dependence on federal allocations, urging structural reforms to ensure long-term fiscal health.
The naira’s devaluation has further compounded the issue, particularly for states with significant external debt. In the first half of 2024, Nigerian states spent N139.92 billion on external debt servicing, a 122% increase from the previous year, driven by exchange rate volatility. Ekiti’s Commissioner of Finance, Akintunde Oyebode, noted that rising exchange rates have escalated foreign debt repayment costs, while Cross River’s Commissioner, Michael Odere, expressed concerns about reduced revenues impacting capital projects.
As Nigeria’s total debt profile climbs—projected to reach N187.79 trillion by the end of 2025—the African Development Bank has warned that the country could spend 75% of its revenues on interest payments this year. This outlook underscores the urgency for states to adopt sustainable financing models, such as issuing long-term revenue bonds for infrastructure projects, as suggested by Shitta-Bey. Without such reforms, the rising debt burden risks undermining economic stability and development across Nigeria’s states.