Nigeria’s ten most indebted states have collectively inflated their domestic debt by ₦417.7 billion in just one year, even as federal allocations surged due to higher oil prices and subsidy removal.

Newly released data from the Debt Management Office (DMO) show that Rivers, Enugu, Niger, Taraba, Bauchi, Benue, Gombe, Edo, Kwara and Nasarawa States raised their combined debt stock from ₦884.9bn in Q1 2024 to ₦1.3tn in Q1 2025 – a 47.2% increase year-on-year.

This spike came despite a significant rise in monthly allocations from the Federation Account (FAAC).

On a quarterly basis, the same states’ debt rose by ₦42.3bn (3.4%) from ₦1.26tn in Q4 2024 to ₦1.30tn in Q1 2025. Analysts warn that this trend raises urgent questions about fiscal discipline, debt sustainability and the effective use of Nigeria’s new revenues.

Windfall Revenues vs New Borrowing

Since mid-2023 Nigeria has experienced a windfall of federal revenues. International oil prices have rebounded, the naira’s devaluation boosted government receipts, and petrol subsidies were scrapped – all boosting FAAC disbursements.

For example, FAAC transfers in late 2024 hit record highs. Yet rather than use these gains to pay down past borrowings, many states borrowed even more.

As one review notes, the debt surge occurred “even as states benefited from improved FAAC disbursements following oil price gains, naira devaluation, and subsidy reforms”.

In effect, states appear to have doubled down on debt just when their budgets should have been strongest, a paradox that fiscal experts say could prove reckless.

The ten states now hold a third of all subnational debt in Nigeria. Their ₦1.30tn of domestic obligations amounts to 33.67% of the ₦3.87tn owed by all 36 states and the FCT (Federal Capital Territory) as of Q1 2025.

This is a sharp jump from just 21.8% a year earlier. In other words, a few states are shouldering an ever-larger share of the country’s state‐level indebtedness. (By comparison, total domestic debt of all states slightly declined from ₦4.07tn in Q1 2024 to ₦3.87tn in Q1 2025, reflecting cuts elsewhere.)

This concentration suggests uneven fiscal behaviour: while most states reduced or stabilised borrowing, these ten accelerated theirs.

State-by-State Debt Surge

Breakdowns from the DMO data highlight which governments are driving the increase. The top ten borrowers (and changes from Q1 2024 to Q1 2025) are:

Rivers State: ₦364.39bn (Q1 2025) – unchanged from Q4 2024 but +56.7% from ₦232.58bn a year earlier. Rivers’ debt is now the highest of any state, even though its latest figure is reported as of Dec 2024, indicating delayed reporting.

Enugu State: ₦188.42bn, up 128.4% from ₦82.48bn. Enugu not only doubled its debt year-on-year, but added ₦69.14bn in just three months (Q4 2024–Q1 2025).

Taraba State: ₦82.93bn, up 154.1% from ₦32.64bn. This is by far the steepest percentage increase among the ten.

Niger State: ₦143.75bn, up 67.0% from ₦86.07bn.

Bauchi State: ₦142.40bn, up 31.4% from ₦108.39bn (a slight drop of ₦1.55bn from Q4 2024).

Benue State: ₦129.82bn, up 11.2% from ₦116.73bn (also +₦7.25bn since Q4 2024).

Gombe State: ₦83.66bn, up 18.1% from ₦70.81bn (though down ₦5.58bn from Q4).

Edo State: ₦82.40bn, up 13.8% from ₦72.38bn (after a ₦30.60bn cut from Q4).

Kwara State: ₦60.10bn, up 1.7% from ₦59.07bn (up ₦1.02bn on Q4).

Nasarawa State: ₦24.73bn, up 4.1% from ₦23.76bn (down ₦1.87bn on Q4).

These figures show that Rivers and Enugu drove much of the surge. Rivers alone accounted for 27.9% of the ten states’ total debt in Q1 2025, up from 26.3% a year ago.

Enugu’s rapid doubling of debt (and Taraba’s 154% jump) have raised alarms, especially as neither government has publicly detailed the projects financed by the new loans.

By contrast, Edo and Gombe appear to have exercised more restraint – Edo cut its borrowing sharply in Q4, and Gombe’s debt fell from Q4 to Q1.

Overall, the ten states added ₦417.7bn in debt over 12 months. In Q1 2025 alone, they owed ₦1.30tn – an enormous sum equivalent to Nigeria’s entire annual budgets of some small economies. Yet the justification for this borrowing is unclear.

Government statements and budget documents have not yet explained why debt rose when revenues were rising. This absence of transparency has prompted calls for closer scrutiny of each state’s accounts.

Debt Service Squeeze and Fiscal Risks

The growing debt pile has direct implications for states’ budgets. A recent review shows that debt service costs are consuming a larger share of state revenues, sometimes dramatically.

In the first quarter of 2025, seven states (Bayelsa, Adamawa, Benue, Niger, Kogi, Taraba and Bauchi) together spent ₦98.71bn on servicing debt – roughly 190% of their combined internally generated revenue (IGR).

This was a 51% jump from the ₦65.24bn they spent in Q4 2024.

In some cases debt service even exceeded 300% of IGR, meaning those states were paying more in interest than they earned locally.

Such figures underscore a crowding‑out effect: rising debt obligations leave less of the FAAC transfers available for schools, hospitals and infrastructure.

Analysts warn that if this trend continues, debt could consume an ever-larger slice of state budgets.

In the words of one report, states must avoid “a looming crowding-out effect, where growing debt service obligations reduce the fiscal space for capital projects and social spending — especially for states with weak revenue bases”.

Already, the debt surge has triggered warnings from economists and rating agencies. Teslim Shitta-Bey, Director and Chief Economist at Proshare Nigeria, cautions that both federal and state governments are failing to manage their balance sheets properly.

Shitta-Bey argues that borrowing “might seem like an easy way to run operations” but it is “not necessarily the right approach” without a solid repayment plan.

He urges states to consider more innovative financing: “Borrowing should not be the default response to fiscal challenges,” he advises. Instead, governments should explore longer-term capital structures and even asset-backed equity models.

For instance, he notes that states have under-utilised revenue bonds (meant to fund income-generating projects) and should build a register of assets (like stadiums or airports) to raise equity-based capital.

Lagos-based economist Adewale Abimbola offers a related critique. He says many states suffer from economic non-viability and over-reliance on FAAC.

“State governors already know what to do,” Abimbola observes, “the problem is the lack of political will.”

He warns that governors appear more focused on preparing for the 2027 elections than on shoring up their finances.

Abimbola urges states to identify and market their competitive advantages – whether it’s mineral resources, agriculture or ICT – to attract private and foreign investment, and to improve the ease of doing business.

By mobilising local IGR (taxes, fees, levies) through these reforms, states could reduce their dependence on loans.

Another analyst, Dayo Adenubi, also highlights the need to boost domestic revenue. He suggests raising consumer spending (to lift VAT collection) and enforcing existing taxes (such as property and transport levies) as key steps.

In other words, states should bolster their own coffers rather than default to borrowing. This view echoes a broader warning: the current debt trajectory risks trapping states in unsustainable liabilities.

As experts note, failing to rein in borrowing while revenues are high “may backfire if allocations fall or interest rates rise, leaving states exposed and limiting their ability to fund essential services”.

A Ticking Fiscal Time-Bomb?

The data paint a worrying picture. Instead of using an oil-fuelled revenue boom to deleverage, many Nigerian states have rushed to borrow more.

Their debt loads are rising much faster than their economies, concentrating risk in a handful of governments. If oil prices fall, inflation spikes or credit costs rise, these states could face a fiscal crisis.

Moreover, high debt service obligations may crowd out education, healthcare and infrastructure spending at precisely the moment when Nigerians expect development.

Global investors and rating agencies are watching closely. Already, Nigeria’s sovereign credit has been the subject of cautionary ratings (Fitch, S\&P, Moody’s all note risks), and unsound state finances would only heighten the country’s overall credit strains.

Domestically, civil society and press watchdogs will likely demand audits of state projects funded by this new debt.

The lingering question is what concrete projects all these borrowings have financed – roads, power plants, education or something else – and whether those projects will yield enough growth or revenue to justify the loans.

In short, the ₦417.7bn surge in subnational borrowing is a major fiscal red flag. It suggests that, for now, Nigerian state governments have chosen debt over discipline, putting future budgets and development plans at risk.

As Teslim Shitta-Bey warns, without “sound repayment and investment plans,” this strategy could undermine states’ ability to provide services and maintain stability.

Policymakers will need to act quickly – through tighter borrowing rules, greater transparency, and real economic reforms – to defuse this fiscal time-bomb.

Nigeria’s Fiscal Reckoning: Subnational Borrowing Meets Global Scrutiny

Borrowing or Betting? The Political Economy of Subnational Debt

As Nigeria barrels toward the 2027 general elections, the political backdrop of state borrowing cannot be ignored. Analysts believe much of the ₦417.7 billion borrowed in the past year by 10 states may be more than fiscal planning—it may be pre-election political insurance.

States such as Enugu, Taraba, and Niger—which more than doubled their debt within 12 months—are led by first-term governors.

Political observers suggest that these governors are building war chests for “legacy” infrastructure or strategic influence-building. But critics worry about the opacity surrounding these borrowings.

“When projects are not tied to revenue returns or audited publicly, these debts risk becoming liabilities, not investments,” warns Feyi Fawehinmi, a public finance commentator.

Take Enugu, whose debt surged by 128.4% in one year without any comprehensive public register of debt-financed projects.

Civil society groups in the state are demanding detailed breakdowns of capital expenditure—a transparency principle mandated under the Nigerian Fiscal Responsibility Act (FRA), yet often disregarded by states.

Comparative Global Insights: How Other Federal Systems Manage Subnational Debt

Nigeria’s borrowing model is unusual among federal countries. Globally, there are strict limits and oversight mechanisms for subnational debt.

Here’s how three leading federal systems handle it:

United States: The Balanced Budget Tradition

In the U.S., 48 out of 50 states are legally required to balance their budgets annually. States like California and Illinois may run high debts, but they issue revenue bonds or municipal bonds, which are tied to specific income streams—like tolls or sales tax.

Defaulting is rare because:

• Debt is publicly tracked via the Municipal Securities Rulemaking Board (MSRB)
• Investors demand credit ratings from agencies like Moody’s or S&P
• Civil society and media aggressively scrutinise state borrowing

In Nigeria, by contrast, domestic debt is not routinely tied to verifiable revenue projects.

State Assemblies approve loans with minimal resistance, and oversight agencies like the State Houses of Assembly Public Accounts Committees often lack the capacity—or independence—to probe effectively.

India: Fiscal Rules and RBI Oversight

India enforces its Fiscal Responsibility and Budget Management (FRBM) Act, which mandates all states to cap their fiscal deficits at 3% of Gross State Domestic Product (GSDP).

Violating states are denied permission to borrow. The Reserve Bank of India (RBI) acts as a gatekeeper—states cannot raise market loans without RBI’s green light.

Unlike Nigeria’s Debt Management Office (DMO), which mainly collates post-facto data, India’s RBI conducts pre-loan assessments.

If similar rules applied in Nigeria, many states would have failed the basic debt sustainability test.

Brazil: Constitutional Debt Limits and Transparency

Brazil’s Fiscal Responsibility Law (FRL), introduced in 2000, caps public-sector borrowing and enforces transparency. States must:

• Disclose all debt contracts
• Limit interest expenditure to 11.5% of net revenue
• Cap debt stock at 200% of net revenue

Brazil also punishes defaulters. States that breach the rule lose access to federal guarantees or face cuts in transfer payments.

This incentive structure ensures compliance, prudence and transparency—features missing in Nigeria’s system.

A Call for Fiscal Federalism Reform

Nigeria’s DMO data, though improving, does not disaggregate debt by project, sector or revenue yield. This blind spot hinders public accountability.

Experts argue that until Nigeria reforms its fiscal federalism, state-level debt crises will continue in cycles.

The current model has created federally dependent, fiscally fragile states. As Adewale Abimbola noted:

“These states are not functioning as federating units. They are behaving like administrative appendages of the central government, waiting for allocations and borrowing to plug their gaps.”

To avoid future crises, Nigeria must consider:

Enshrining fiscal rules in state constitutions: Including debt-to-revenue caps and project disclosure laws

Mandating quarterly public debt audits: Verified by independent auditors or civil society

Linking borrowing to performance: States with credible repayment records and investment returns should access cheaper credit

Creating a subnational credit rating bureau: To grade states and promote transparency

Strengthening State Assemblies’ oversight roles: Through financial independence and capacity-building

“The Debt Democracy Dilemma”

Debt is neither inherently good nor bad—it depends on how it’s used. Borrowing for productive investment—such as roads, hospitals, irrigation, power—can spur economic growth.

But borrowing to fund recurrent expenditure or political patronage is economic sabotage.

Unfortunately, many Nigerian states have failed this test. As macroeconomic analyst Dayo Adenubi pointed out,

“If your debt service is three times your IGR, then you’re no longer borrowing for development. You’re just surviving on credit.”

The Time Bomb Is Ticking

The most vulnerable states—Taraba, Niger, Bauchi, and Benue—already spend more than their earnings on debt service. The risk is systemic.

A fiscal shock (such as a drop in oil prices or another Naira devaluation) could push multiple states into technical default.

Nigeria has no formal state bankruptcy law like the U.S. Chapter 9 system. If a state defaults, there’s no clear resolution mechanism.

Meanwhile, international credit markets are watching. A spike in subnational borrowing undermines investor confidence in Nigerian fiscal governance.

As foreign capital becomes more selective, states with opaque borrowing practices will struggle to attract investment or concessional loans.

Final Word: Nigeria at a Crossroads

The ₦417bn borrowing surge by 10 states is not just a data anomaly—it is a symptom of deeper structural rot in Nigeria’s federal fiscal system.

What’s needed is not just repayment plans, but a rethink of how, why, and when states borrow.

With the 2027 elections looming, there is growing concern that political ambition will outpace fiscal prudence.

Unless transparency and accountability mechanisms are enforced—both constitutionally and institutionally—Nigerian states risk mortgaging their future for today’s expedience.