Thirty-two states and the Federal Capital Territory racked up nearly $1bn in fresh external loans in 2025, driving a year-on-year surge in subnational foreign debt despite higher inflows from Federation Account Allocation Committee disbursements, an analysis by The PUNCH has shown.
Data from the Debt Management Office indicated that the combined external debt stock of the 36 states and the FCT increased from $4.80bn as of December 31, 2024, to $5.68bn as of December 31, 2025, reflecting a net increase of $884.66m, or 18.43 per cent year-on-year.
A breakdown of the data showed that 33 out of the 37 subnational entities recorded increases in their external debt positions during the period under review, representing 89.19 per cent of the total, while only four states posted declines, accounting for 10.81 per cent.
The scale of the increase shows a continued reliance on external financing by state governments amid fiscal pressures, infrastructure demands, and rising FAAC revenues.
Analysis of year-on-year movements revealed that total increases across the 32 states and the FCT amounted to $944.12m, while total reductions across the four states amounted to $59.46m. The net effect of these opposing movements resulted in the overall increase of $884.66m in the external debt stock.
This indicates that the modest declines recorded in a few states were insufficient to offset the widespread borrowing expansion across most states, with increases outweighing reductions by nearly 16 to 1.
The rise in indebtedness comes at a time when FAAC disbursements to states have improved considerably, fuelled by rising oil prices, gains from naira devaluation, and revenue freed up from petrol subsidy removal.
However, the figures suggest that rather than leveraging these inflows to reduce debt, some states are borrowing even more from foreign sources. The 32 states and FCT, which recorded a $944.12m increase in foreign loans, got about N1.36tn in naira terms using the exchange rate adopted by the DMO for 2025, which is N1,435.2571/$1.
Among the states that recorded declines were Edo, Rivers, Anambra, and Bayelsa. Edo posted the largest reduction, with its external debt falling by $29.02m, representing a 7.58 per cent decrease from $383.05m in 2024 to $354.03m in 2025.
Rivers followed with a decline of $28.69m, or 14.37 per cent, dropping from $199.58m to $170.90m. Anambra recorded a marginal decrease of $1.11m, while Bayelsa’s debt reduced slightly by $0.64m.
Despite these reductions, the overwhelming trend across states was upward. Several states recorded significant increases in both absolute and percentage terms, indicating aggressive borrowing patterns.
Katsina recorded one of the largest increases in absolute terms, with its external debt rising by $100.16m, nearly doubling from $100.46m in 2024 to $200.62m in 2025, representing a 99.70 per cent increase.
Kaduna also posted a substantial increase of $59.19m, bringing its total external debt to $684.29m, making it one of the most indebted states externally after Lagos.
Kogi’s external debt rose by $66.08m, representing a 126.07 per cent increase, while Niger recorded a $73.38m rise, more than doubling its debt stock with a 109.18 per cent increase. Plateau recorded the highest percentage increase overall at 187.24 per cent, with its debt rising by $60.24m.
Gombe posted one of the highest percentage increases at 168.70 per cent, with its external debt jumping by $55.67m from $33.00m to $88.66m. Benue also recorded a sharp increase of 128.16 per cent, while Yobe’s debt surged by 136.56 per cent, further highlighting the rapid pace of borrowing among several states.
Imo’s external debt rose by $45.64m, representing a 63.90 per cent increase, while Oyo recorded a $34.71m rise, translating to a 65.73 per cent increase. Sokoto’s debt increased by $42.92m, or 84.15 per cent, while Jigawa posted a 95.87 per cent increase, adding $22.38m to its debt stock.
At the lower end of the spectrum, Lagos, which remains the most externally indebted state, recorded only a marginal increase of $4.83m, representing 0.41 per cent growth from $1.17bn in 2024 to $1.17bn in 2025.
The relatively flat growth in Lagos’ external debt suggests a more cautious borrowing approach compared to other states, despite maintaining the largest debt stock.
Cross River’s debt rose by $20.46m to $222.92m, while Bauchi recorded an increase of $33.75m to $220.57m. Ogun’s external debt rose by $24.10m, while Ondo recorded an $8.25m increase.
In the South-East, Ebonyi’s debt rose by $16.94m, while Enugu recorded a $12.83m increase. Abia’s external debt also rose by $5.69m, representing a modest 5.61 per cent increase.
Adamawa posted a $26.03m increase, while Akwa Ibom’s debt rose by $19.90m, representing a 55.97 per cent increase. Delta recorded a $6.28m increase, while Ekiti saw a marginal rise of $1.73m, indicating relatively moderate borrowing activity in those states. The FCT also recorded an increase of $7.31m, representing a 37.53 per cent rise from $19.48m in 2024 to $26.80m in 2025.
Further analysis of the debt composition showed that the bulk of external loans were multilateral, with limited exposure to bilateral and other commercial sources, according to the DMO breakdown.
The sustained increase in external borrowing at the subnational level comes amid rising fiscal constraints, including higher recurrent expenditure and growing infrastructure financing needs, despite higher FAAC revenue.
The PUNCH earlier reported that FAAC allocations to states surged by over N2tn in 2025, according to an analysis of Federation Account disbursement data published by the National Bureau of Statistics and collated by The PUNCH.
The Federation Account disbursement data show that state governments received a total of N7.315tn from the Federation Account Allocation Committee in 2025, compared with N5.186tn in 2024. The year-on-year increase of roughly N2.13tn represents a jump of about 41 per cent in direct FAAC allocations to states.
When the constitutionally mandated 13 per cent derivation revenue is included, total inflows attributable to states rose to N8.934tn (about N9tn) in 2025, up from N6.533tn in 2024, an increase of N2.4tn or 36.74 per cent.
This surge came amid an increase in total FAAC distributions. Aggregate allocations to the three tiers of government, including derivation, rose from N15.259tn in 2024 to N21.897tn in 2025.
States therefore captured a substantial share of the overall increase, both in absolute terms and as a proportion of total federation revenues. Without the 13 per cent derivation component, states’ N7.315tn allocation in 2025 accounted for about 33.4 per cent of the N21.897tn total FAAC disbursement for the year, compared with roughly 34.0 per cent in 2024.
When derivation revenue is included, total state-linked receipts of N8.934tn represented about 40.8 per cent of total FAAC disbursements in 2025.
The PUNCH also reported that states paid N455.38bn in foreign debt service in 2025, up from N362.08bn in 2024, according to Federation Accounts Allocation Committee figures released by the National Bureau of Statistics and obtained and analysed by The PUNCH.
The year-on-year comparison indicated that subnational governments’ foreign debt deductions rose by N93.30bn, representing a 25.77 per cent increase in 2025 over the prior year.
In plain terms, states collectively lost a larger share of their FAAC inflows to external loan repayments and related obligations in 2025 than in 2024, tightening the fiscal space available for salaries, capital projects, and routine governance.
In a recent statement, the acting Director of Communication and Stakeholders Management at the Nigeria Extractive Industries Transparency Initiative, Mrs Obiageli Onuorah, noted that states face financial strain due to debt repayments, despite record-high disbursements from the Federation Accounts Allocation Committee.
According to the statement, a NEITI report showed that several states with high debt burdens also ranked lower in FAAC allocations, raising concerns about their fiscal sustainability and their ability to fund critical projects.
“The report noted that many states with high debt ratios were in the lower half of the FAAC allocation rankings but ranked higher for debt deductions, raising concerns about their debt-to-revenue ratios and overall fiscal health,” the statement read.
Speaking recently on Channels Television’s Politics Today programme, the Country Director of BudgiT, Vahyala Kwaga, expressed concern that the more FAAC allocations go to states, the more disincentivised they appear to be to boost their internally generated revenue.
Kwaga further said that “Fiscal sustainability requires that states look inward, improving revenue systems, cutting waste, and prioritising infrastructure and human development investments that deliver long-term value.”
Analysts earlier told The PUNCH that continued reliance on foreign loans exposes states to even greater fiscal risks amid a weakening naira.
“Since most of the debts are dollar-denominated, every depreciation of the local currency automatically inflates repayment obligations, forcing states to channel a larger share of their revenues into debt servicing at the expense of development projects,” says a Professor of Economics at the Ekiti State University, Taiwo Owoeye.
Beyond repayment costs, Owoeye noted that heavy external borrowing also undermines states’ financial autonomy.
“By taking on more foreign obligations, many states risk mortgaging future federal allocations to meet repayment schedules, leaving them with little room to respond to emergencies or fund critical sectors such as health, education, and infrastructure,” he explained.
The Director and Chief Economist at Proshare Nigeria LLC, Teslim Shitta-Bey, warned that the rising debt burden on Nigeria’s subnational governments could challenge their fiscal stability in the coming years.
He stressed that most state governments, along with the Federal Government, had failed to effectively manage their balance sheets. Speaking recently to The PUNCH, Shitta-Bey said, “The challenge here is that most of the governments, including the Federal Government, are unable to manage their balance sheets properly. While borrowing might seem like an easy way to run operations, it is not necessarily the right approach.”
According to Shitta-Bey, borrowing should not be the default solution for governments. “Governments could consider longer-term debt structures that resemble equity, which might actually be more beneficial in the long run,” he explained.
A macroeconomic analyst, Dayo Adenubi, also emphasised the need for states to take more targeted steps toward boosting internally generated revenue as they grapple with rising debt obligations and constrained federal transfers.
(Punch)
