Nigeria’s 36 states and the Federal Capital Territory have increased their external debt burden to nearly US$5.68 billion in 2025, even as federal revenue transfers to subnational governments reached record levels, official data show.
According to figures from the Debt Management Office, combined external debt rose from US$4.80 billion in 2024 to US$5.68 billion in 2025, representing an increase of US$884.66 million, or about 18.4 percent year-on-year.
The data show that 33 of the 37 subnational governments recorded higher external debt levels during the period, while only four states posted declines, underscoring a broad-based rise in foreign borrowing across the country.
The increase comes despite a sharp rise in allocations from the Federation Account Allocation Committee (FAAC), which distributes oil and non-oil revenues to federal, state and local governments.
States received about ₦7.32 trillion (US$5.1 billion) in 2025, up from ₦5.19 trillion in 2024 — an increase of roughly 41 percent — boosted by higher oil prices, exchange rate adjustments and the removal of fuel subsidies.
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When derivation payments are included, total inflows to states rose to about ₦8.93 trillion, equivalent to roughly $6.2 billion using the official exchange rate cited by the Debt Management Office.
Despite this revenue surge, states collectively also paid US$455 million in external debt service in 2025, up from $362 million the previous year, reflecting the growing cost of servicing foreign currency obligations.
Analysts say the figures highlight a widening gap between rising revenues and even faster-growing borrowing at the subnational level.
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Much of the new debt is concentrated in a handful of states that have significantly expanded their external liabilities, largely to finance infrastructure projects amid fiscal pressures and rising recurrent expenditures.
States such as Katsina, Kogi, Niger, Plateau, Gombe and Yobe recorded some of the fastest increases, in some cases more than doubling their external debt stock within a year.
For example, Katsina’s external debt rose by nearly 100 percent to about US$200 million, while Plateau recorded the steepest percentage increase at over 187 percent. Kogi and Niger also more than doubled their foreign debt positions.
However, some states managed to reduce their exposure. Edo, Rivers, Anambra and Bayelsa recorded declines, with Edo posting the largest reduction in absolute terms.
Lagos State, which remains the most indebted subnational entity externally with about US$1.17 billion, recorded only marginal growth of 0.4 percent, suggesting a more cautious borrowing stance compared to other states.
Economists warn that the growing reliance on external loans exposes states to exchange rate risks, particularly in a period of currency volatility.
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Because most subnational debt is dollar-denominated, any depreciation of the naira significantly increases repayment costs in local currency terms, squeezing budgets for salaries, infrastructure and social services.
Analysts also point to concerns that rising FAAC inflows may be reducing incentives for states to strengthen internally generated revenue, as higher federal transfers appear to support expanded borrowing rather than fiscal consolidation.
“Instead of using improved allocations to reduce debt, many states are layering new borrowing on top of existing obligations,” one fiscal analyst said.
Policy experts argue that the trend raises long-term sustainability concerns, particularly as some states now allocate a growing share of their revenues to debt servicing.
The Nigeria Extractive Industries Transparency Initiative has also warned that states with high debt burdens often face tighter fiscal space despite receiving large federal allocations, raising questions about debt efficiency and project outcomes.
With external borrowing continuing to rise, analysts say the key challenge for state governments will be balancing infrastructure financing needs with fiscal sustainability and improved revenue generation.
Without stronger controls, they warn, Nigeria’s subnational debt profile could become increasingly vulnerable to exchange rate shocks and refinancing risks in the years ahead.
