Nigeria’s 36 states have collectively spent approximately N235.58 billion on servicing external debt obligations in the first half of 2025, representing a significant 68.4% increase from N139.92 billion recorded in the same period of 2024. This surge is attributed to the mounting pressure of dollar-denominated debt repayments on state finances, exacerbated by the naira’s depreciation. The Federal Government undertakes external debt servicing on behalf of the states through an Irrevocable Standing Payment Order arrangement, authorizing automatic deductions from their monthly Federation Account Allocation Committee (FAAC) allocations.
Lagos State remains the largest contributor to the overall debt servicing bill, remitting N49.58 billion in the first six months of 2025, a 52.8% increase from N32.44 billion in the same period last year. Rivers State follows closely, with a staggering 470% increase from N4.62 billion to N26.34 billion. Other top contributors include Kaduna State, with a modest 6% rise to N24.47 billion, Ogun State, with N12.57 billion, nearly triple the N4.29 billion recorded in the first half of last year, and Edo State, with N10.18 billion, a 72.6% increase from N5.90 billion in 2024. Collectively, these five states account for 52.3% of all external debt servicing payments made by the 36 states.
The data reveals interesting regional patterns, with Lagos and Ogun leading in the South-West, reflecting aggressive use of foreign loans for infrastructure projects. In the South-South, Rivers and Edo have posted significant increases, while Cross River remained high at N9.82 billion. Kaduna remains the largest payer in the North, while Bauchi recorded N8.13 billion in repayments. The presence of non-megacity states like Cross River and Bauchi in the higher ranks highlights that significant foreign debt is not limited to Nigeria’s most industrialized subnational economies.
Economists warn that the rising debt service burden could crowd out spending on essential services and infrastructure without a significant increase in revenue generation. The Director and Chief Economist at Proshare Nigeria LLC, Teslim Shitta-Bey, emphasizes the need for governments to manage their balance sheets properly and consider longer-term debt structures. A macroeconomic analyst, Dayo Adenubi, stresses the importance of boosting internally generated revenue through strategies like increasing Value Added Tax collections and enforcing property taxes.
The surge in debt servicing costs is placing heavy strain on state budgets, with some states spending over 190% of their Internally Generated Revenue on debt servicing. Seven Nigerian states spent a total of N98.71 billion on debt servicing in Q1 2025, marking a 51% increase from the previous quarter. This trend raises concerns about the fiscal sustainability and ability of states to fund critical projects, highlighting the need for prudent debt management and economic reforms.
