Nigerian states push debt to ₦4 trillion amid 161% increase in federal allocations

…29 states rely heavily on federal transfers

…Loans increase despite FAAC’s record inflows

Daud Olatunji

Nigeria’s 36 states and the Federal Capital Territory (FCT) have increased lending, pushing their overall domestic debt to ₦4 trillion as of September 2025, even as federal allocations to subnational governments continue to rise sharply

Data from the Bureau of National Statistics (NBS) shows that the states’ debt profile, which had fallen from ₦5.8 trillion in December 2023 to ₦3.8 trillion in March 2025, is now recovering, raising concerns of renewed fiscal pressure across the federation.

The development highlights a growing paradox: despite a 161% increase in Federation Account Allocation Committee (FAAC) disbursements over the past three years, many states are increasingly turning to borrowing to support their budgets and finance projects.

FAAC allocations to states increased from ₦2.80 trillion in 2022 to ₦3.53 trillion in 2023, ₦5.27 trillion in 2024, and ₦7.315 trillion in 2025, reflecting a steady inflow of federal revenue.

However, analysts say the increase in appropriations has not translated into deleveraging, suggesting persistent fiscal pressures and weak revenue structures at the state level.

Economic experts warn that the trend points to structural inefficiencies in public financial management, including an over-reliance on federal transfers and limited growth in internally generated revenue (IGR).

A breakdown of the debt profile shows that Lagos State remains the highest national debtor at ₦1.04 trillion, followed by Rivers State (₦381 billion), Delta State (₦247 billion), Enugu State (₦194.7 billion) and Ogun State (₦168 billion).

On the external front, Lagos also leads with $1.049 billion, ahead of Kaduna ($658 million), Edo ($337 million), Ogun ($214 million) and Cross River ($201 million), underscoring the extent of indebtedness among economically active states.

Further analysis of revenue trends for the first half of 2025 indicates that 30 states collectively generated ₦6.05 trillion, which represents 87% of their projected revenue target of ₦6.95 trillion.

However, FAAC allocations accounted for ₦4.46 trillion, or 73.8% of total revenue, while the IGR contributed only ₦1.59 trillion (26.2%), highlighting the continued reliance on federal funds.

The report further showed that FAAC inflows accounted for between 70 and 95 percent of total revenue in 29 states, with Lagos being the only state where federal appropriations accounted for a minority share of 28.9 percent.

In terms of IGR performance, 11 states met or exceeded their targets, led by Akwa Ibom, Cross River and Ekiti. However, 19 states fell short, with Jigawa, Taraba and Sokoto recording some of the weakest performances.

Lagos once again emerged as the top revenue-generating state, recording ₦1.28 trillion in the first half of 2025, followed by Akwa Ibom with ₦579 billion, Bayelsa with ₦291 billion and Edo with ₦264 billion.

Experts have expressed concern about the growing debt burden, warning that without significant improvements in fiscal discipline and revenue diversification, many states may struggle to support development and meet future obligations.

They also warn that rising debt servicing costs could crowd out critical spending on infrastructure, education and healthcare, thereby slowing economic growth at the subnational level.

With debt rising despite unprecedented federal allocations, Nigeria’s state governments are facing growing pressure to strengthen their fiscal frameworks and reduce their reliance on debt financing.

Source: business day

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