…Seven states now spend more than their entire IGR on debt servicing, economists warn of fiscal risks

Nigeria’s 36 states collectively spent about ₦235.58bn servicing external debt in the first half of 2025, marking a sharp 68.4% increase from the ₦139.92bn recorded in the same period of 2024, according to an analysis of National Bureau of Statistics data on FAAC disbursements.

The jump, ₦95.65bn more year-on-year, reflects the mounting strain of dollar-denominated debt repayments on state finances following the naira’s depreciation. External debt servicing is handled centrally by the Federal Government under an Irrevocable Standing Payment Order (ISPO) arrangement, with deductions made from states’ FAAC allocations before disbursement.

January 2025 saw the largest single-month outflow, ₦40.09bn, more than quadruple the ₦9.88bn in January 2024. February and March each posted ₦39.10bn, while April to June maintained the same figure, signalling relative currency stability in Q2 but still far above 2024’s monthly average.

Lagos State led repayments with ₦49.58bn — over double any other state — followed by Rivers (₦26.34bn, up 470%), Kaduna (₦24.47bn), Ogun (₦12.57bn), and Edo (₦10.18bn). These five accounted for over half of all state debt repayments in H1 2025. At the other end, Jigawa paid the least at ₦1.39bn.

Regional patterns show Lagos and Ogun dominating the South-West, Rivers and Edo topping the South-South, and Kaduna leading the North. States like Cross River (₦9.82bn) and Bauchi (₦8.13bn) also ranked high despite smaller economies, underlining that significant foreign debt is not limited to Nigeria’s biggest industrial hubs.

Analysts warn that weaker exchange rates inflate naira-denominated repayments even if the foreign currency amounts remain unchanged, squeezing state budgets and crowding out capital projects. Seven states, including Bayelsa, Benue, and Taraba, spent more than 190% of their Internally Generated Revenue (IGR) on debt servicing in Q1 2025, with some exceeding 300%.

Economists such as Teslim Shitta-Bey urge better fiscal discipline, longer-term debt structures, asset monetisation, and increased use of revenue bonds over general obligation bonds. NEITI has also raised concerns over fiscal sustainability, noting that several highly indebted states rank in the lower half for FAAC allocations.

Macroeconomic analyst Dayo Adenubi advised states to boost IGR by raising consumption to grow VAT receipts, improving property tax enforcement and enhancing transport levies, while maintaining citizen trust through visible governance outcomes.