Nigerian States Domestic Debt 2025: Rising Borrowing Amid Surging Revenue Raises Fiscal Concerns

Editor July 7, 2025Last Updated: July 7, 2025

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By DAYO ADESULU

Despite record FAAC allocations in 2025, Nigerian states’ domestic debt rose by ₦417.7bn. Explore what’s fueling the rise in Nigerian states domestic debt 2025 and the implications for subnational borrowing trends in Nigeria.

Overview of Subnational Borrowing Trends in Nigeria

As of Q1 2025, at least 10 Nigerian states collectively increased their domestic debt by ₦417.7 billion year-on-year. This occurred despite notable improvements in Federation Account Allocation Committee (FAAC) disbursements, thanks to rising oil revenues, a weaker naira, and fuel subsidy removal.

According to data from the Debt Management Office (DMO), the Nigerian states total domestic debt rose from ₦884.9 billion in Q1 2024 to ₦1.3 trillion by Q1 2025—a 47.2% spike. This alarming growth has sparked debates about the sustainability and prudence of state-level borrowing across Nigeria.

States With the Highest Year-on-Year Debt Increases

Rivers State: Top Borrower in Q1 2025

Rivers State leads with the highest domestic debt of ₦364.39bn as of Q1 2025, unchanged from Q4 2024. However, compared to Q1 2024, it rose by ₦131.82bn—an increase of 56.7%. It’s worth noting that Rivers’ figure is as of December 2024, showing potential reporting delays.

Enugu State: Sharpest Growth in One Year

Enugu more than doubled its domestic debt, surging from ₦82.48bn to ₦188.42bn within a year—a jaw-dropping 128.4% increase. It also recorded the largest quarterly jump, with ₦69.14bn added in just three months.

Niger and Taraba: Heavy New Borrowers

Niger State’s debt increased by 67% (from ₦86.07bn to ₦143.75bn). Taraba experienced a 154.1% rise—moving from ₦32.64bn to ₦82.93bn—marking the steepest percentage growth among the 10.

Quarterly Debt Growth Analysis (Q4 2024 – Q1 2025)

While the year-on-year numbers were staggering, the quarter-on-quarter growth still raised eyebrows. The combined domestic debt of the 10 states climbed by ₦42.3bn between Q4 2024 and Q1 2025—an increase of 3.4%.

Debt Increase Patterns

States like Benue, Kwara, and Nasarawa recorded modest increases over the three-month span. Benue grew its debt by ₦7.25bn, while Kwara added ₦1.02bn.

Signs of Fiscal Restraint in Gombe and Edo

Gombe reduced its debt from ₦89.24bn to ₦83.66bn. Edo slashed over ₦30bn off its balance sheet—dropping from ₦113bn to ₦82.4bn—showing effective debt management practices.

FAAC Allocations vs Borrowing Behavior

Why More Funds Haven’t Reduced Debt

FAAC allocations have soared due to oil price recovery and FX adjustments. However, states are not channeling this windfall toward debt reduction. Instead, some appear to be doubling down on borrowing.

Impact of Oil Prices, FX Gains, and Subsidy Removal

Though revenues rose, expenses surged too. Inflation, exchange rate volatility, and high infrastructure costs have consumed much of the states’ increased allocations.

Burden of Debt Servicing on State Finances

States Spending More Than Their IGR

A major red flag is that many states are now spending more on debt servicing than they earn in Internally Generated Revenue (IGR). Seven states reportedly used 190% of their IGR for debt payments in Q1 2025.

Q1 2025 Debt Servicing Stats and Trends

Nigerian states like Bayelsa, Benue, Niger, Taraba, Kogi, Bauchi, and Adamawa spent ₦98.71bn on debt service in Q1 2025—a 51% increase from the ₦65.24bn recorded in Q4 2024.

Expert Analysis: Long-Term Risks of Rising Subnational Debt

Proshare’s Teslim Shitta-Bey on Fiscal Sustainability

Teslim Shitta-Bey, Chief Economist at Proshare, warns that rising subnational debt threatens Nigeria’s fiscal stability. He argues that governments—both federal and state—are mismanaging their balance sheets.

Mismanagement of Public Balance Sheets

He cautioned against excessive borrowing, noting that it’s often a substitute for proper financial planning. According to him, the Nigerian states should explore equity-like instruments and improve capital budgeting.

Alternative Solutions to Debt Dependency

Asset Registers and Revenue Bonds

Shitta-Bey emphasized the need for a national asset register, which could help unlock hidden value in dormant state assets like stadiums and public land.

Equity-like Long-Term Financing Structures

He recommends transitioning to long-term financing strategies similar to equity rather than short-term, high-interest obligations.

Disparities Among Nigerian States

While 10 states now hold over 33% of Nigeria’s total state-level domestic debt, the overall national subnational debt actually fell to ₦3.87tn in Q1 2025 from ₦4.07tn a year earlier. This suggests increasing debt concentration and widening financial disparity between richer and poorer states.

Final Takeaway on Nigerian States Domestic Debt 2025

The sharp rise in Nigerian states domestic debt 2025 paints a concerning picture of how states are managing increased revenues. Without a shift toward prudent fiscal management and long-term financing, these subnational borrowing trends in Nigeria could become unsustainable.

❓ Frequently Asked Questions

1. What is subnational debt?

It refers to debt accumulated by state or local governments, excluding the Federal Government.

2. Why are states increasing debt despite more revenue?

Because rising expenditures, inflation, and delayed reforms absorb much of the FAAC gains.

3. Which states have the highest domestic debt?

Rivers, Enugu, Niger, and Taraba top the list in terms of total and percentage growth.

4. What are the risks of high state debt?

It can limit funds for development, trigger defaults, or invite federal intervention.

5. How can states improve debt management?

Through better planning, transparency, asset monetization, and using revenue bonds.

6. What is the role of FAAC in all of this?

FAAC distributes national revenues to states, but how states spend it remains the issue.

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