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In the first half of 2025, states collectively allocated approximately N235.58 billion towards meeting external debt obligations.
This figure, derived from Federal Account Allocation Committee disbursement data released by the National Bureau of Statistics, reflects a significant increase of N95.65 billion or 68.4% compared to the N139.92 billion recorded during the same period in 2024.
This rise highlights the growing burden of dollar-denominated debt payments on state finances, particularly due to the naira’s depreciation.
It's important to understand that the Federal Government manages external debt servicing for the states through an Irrevocable Standing Payment Order, which allows for automatic deductions from their monthly FAAC allocations.
Once an external loan is sanctioned and a subsidiary agreement signed, the Accountant-General of the Federation, in collaboration with the Federal Ministry of Finance and the Central Bank of Nigeria, deducts the designated debt service amount prior to disbursing finances to the states.
According to analysis, January 2025 initiated a substantial outflow of N40.09 billion towards external debt servicing, overshadowing the N9.88 billion paid in January 2024—a staggering year-on-year increase of over 305% and the highest single-month repayment within the year’s first half.
February saw states paying N39.10 billion, which, while slightly lower than January, was still significantly higher than the N24.53 billion disbursed in February 2024, marking a 59.5% increase.
Similarly, March 2025 saw a repeat of N39.10 billion, marginally less than the N40.41 billion paid in March 2024, due to earlier-year spikes when several states made substantial payments to meet maturing obligations.
From April to June 2025, the trend was consistent, with each month witnessing exactly N39.10 billion in debt servicing expenses, indicating relative currency stability during the second quarter of 2025. This pattern signifies an 80.1% escalation in comparison to the N21.70 billion paid during those months a year prior.
Lagos State, recognized as the nation's economic hub, maintained its status as the top contributor to the overall debt servicing total, remitting N49.58 billion in the first half of 2025, a 52.8% increase from the N32.44 billion reported in the same timeframe the previous year.
The scale of Lagos's foreign debt repayment, which is over double that of any other state, reflects its long-standing borrowing profile for major infrastructure projects and the impact of fluctuating exchange rates on dollar-linked debts.
Following Lagos, Rivers State recorded N26.34 billion, a dramatic rise from just N4.62 billion in the first half of 2024, equating to an increase of over 470%. Kaduna State ranked third with N24.47 billion, a modest 6% rise from the N23.09 billion paid last year.
Ogun State took fourth place with N12.57 billion, nearly three times the N4.29 billion reported in the first half of the prior year, while Edo State rounded out the top five with N10.18 billion, a 72.6% increase over the N5.90 billion from 2024.
In total, these five states spent N123.14 billion, representing about 52.3% of all external debt servicing payments made by the 36 states in the first half of 2025, illustrating the concentration of foreign debt exposure among a small group of subnational entities.
On the lower end, Jigawa State recorded the smallest external debt servicing at N1.39 billion in the first half of 2025, a 54.3% increase from N900.54 million in the same period of 2024. Benue followed with N1.44 billion, up 62.1% from N890.16 million last year, while Yobe paid N1.46 billion, reflecting a 77.0% raise from N823.59 million in 2024. Borno State documented N1.52 billion, a 128.1% increase from N668.07 million, whereas Zamfara paid N1.56 billion, 75.0% greater than the N891.82 million logged in the previous year. Plateau also showed minimal repayments at N1.81 billion, but this was 125.8% higher than the N803.28 million paid in 2024.
Though these states have considerably smaller foreign loan portfolios compared to their higher-ranked counterparts, the substantial year-on-year fluctuations emphasize the nationwide repercussions of currency depreciation on servicing external debt.
The data uncovers notable regional trends. In the South-West, Lagos and Ogun lead, indicative of an assertive approach to using foreign loans to finance infrastructure and other development projects, often at concessional rates but with considerable exposure to exchange rate risks.
In the South-South, Rivers and Edo have recorded significant increases, while Cross River remained high at N9.82 billion, rising 24.8% from N7.87 billion in 2024. In the North, Kaduna is the largest payer, with Bauchi documenting N8.13 billion in repayments, a 28.5% rise from the N6.33 billion paid last year.
The presence of Cross River, Bauchi, and other non-megacity states in the high ranks demonstrates that substantial foreign debt is not limited to Nigeria’s most economically advanced subnational entities.
The effect of currency valuation on these figures is considerable. Given that most external debts are in foreign currencies, a declining naira escalates the local currency cost of servicing those debts, even if the owed amounts in dollars or other currencies remain constant.
This increase in naira expenses, without alterations in the foreign currency obligations, severely strains state budgets, particularly those with limited capacities for generating internal revenue.
Earlier reports indicated that seven states allocated over 190% of their Internally Generated Revenue to debt servicing in the first quarter of 2025. Analyses from the Q1 2025 Budget Implementation Reports for Bayelsa, Adamawa, Benue, Niger, Kogi, Taraba, and Bauchi states revealed that debt servicing expenditures exceeded their IGR, in certain instances surpassing 300%.
The trend reflects a significant quarter-on-quarter uptick in debt service costs, which observed an approximate 51% rise across the reviewed states when compared to figures from Q4 2024.
Report also indicate that in Q1 2025, a total of N98.71 billion was spent on debt servicing by seven Nigerian states, marking a sharp increase of N33.48 billion (or 51%) from the N65.24 billion recorded in the preceding quarter. For many states, debt servicing now consumes a significant portion of their monthly FAAC allocations, limiting funds available for ongoing expenses and capital projects.
A comparison with 2024 figures reveals notable shifts in rankings. In 2024, Lagos, Kaduna, and Cross River topped the list for external debt servicing, followed by Bauchi and Edo.
This year, Rivers and Ogun have surfaced in the top five, displacing Cross River and Bauchi from their positions. Economists caution that without a marked increase in revenue generation, the escalating debt service burden could inhibit spending on essential services and infrastructure.
Director and Chief Economist at Proshare Nigeria LLC, Teslim Shitta-Bey, previously warned that the rising debt obligations on Nigeria’s subnational governments could threaten their fiscal stability in the coming years, emphasizing the failure of most state governments and the Federal Government to manage their balance sheets effectively.
Shitta-Bey stated, “The challenge here is that most of the governments, including the Federal Government, are unable to manage their balance sheets effectively. While borrowing might appear to be a straightforward means to conduct operations, it is not always the most suitable approach.”
He urged that borrowing should not be the default response for governments, advocating for long-term debt structures that resemble equity, which might be more advantageous in the long run.
He called for the establishment of a comprehensive register of national assets to assist states in raising capital, using the National Stadium as an example of underutilized assets.
In a statement from acting Director of Communication and Stakeholders Management at the Nigeria Extractive Industries Transparency Initiative, Obiageli Onuorah, the agency highlighted that the report underlined the financial challenges faced by states due to debt repayments, despite record-high disbursements from the Federation Accounts Allocation Committee.
The report from NEITI indicated that numerous states with significant debt sendings also rank lower in FAAC allocations, raising concerns regarding their fiscal sustainability and capacity to fund urgent projects.
“The report noted that many states with high debt ratios fell within the lower half of the FAAC allocation rankings but occupied higher positions for debt deductions, raising alarms regarding their debt-to-revenue ratios and overall fiscal health,” the statement noted.
Macroeconomic analyst Dayo Adenubi also stressed the necessity for states to adopt more targeted approaches to enhance internally generated revenue as they contend with mounting debt obligations and limited federal transfers.
