…29 States Rely Heavily On Federal Transfers
…Borrowing Rises Despite Record FAAC Inflows
Daud Olatunji
Nigeria’s 36 states and the Federal Capital Territory (FCT) have ramped up borrowing, pushing their combined domestic debt to ₦4 trillion as of September 2025, even as federal allocations to the subnational governments continue to rise sharply
Data from the National Bureau of Statistics (NBS) shows that the states’ debt profile, which had declined from ₦5.8 trillion in December 2023 to ₦3.8 trillion in March 2025, has now rebounded—raising concerns about renewed fiscal strain across the federation.
The development highlights a growing paradox: despite a 161 per cent increase in Federation Account Allocation Committee (FAAC) disbursements over the past three years, many states are increasingly turning to borrowing to sustain their budgets and finance projects.
FAAC allocations to states rose from ₦2.80 trillion in 2022 to ₦3.53 trillion in 2023, ₦5.27 trillion in 2024, and ₦7.315 trillion in 2025, reflecting a steady inflow of federal revenues.
However, analysts say the surge in allocations has not translated into reduced borrowing, suggesting persistent fiscal pressures and weak revenue structures at the state level.
Economic experts warn that the trend points to structural inefficiencies in public finance management, including over-reliance on federal transfers and limited growth in internally generated revenue (IGR).
A breakdown of the debt profile shows that Lagos State remains the highest domestic debtor with ₦1.04 trillion, followed by Rivers State (₦381 billion), Delta State (₦247 billion), Enugu State (₦194.7 billion), and Ogun State (₦168 billion).
On the external front, Lagos also leads with $1.049 billion, ahead of Kaduna ($658 million), Edo ($337 million), Ogun ($214 million), and Cross River ($201 million), underscoring the scale of borrowing among economically active states.
Further analysis of revenue performance for the first half of 2025 indicates that 30 states collectively generated ₦6.05 trillion, representing 87 per cent of their projected ₦6.95 trillion revenue target.
However, FAAC allocations accounted for ₦4.46 trillion, or 73.8 per cent of the total revenue, while IGR contributed just ₦1.59 trillion (26.2 per cent), highlighting continued dependence on federal funds.
The report also showed that FAAC inflows made up between 70 and 95 per cent of total revenue in 29 states, with Lagos being the only state where federal allocations accounted for a minority share of 28.9 per cent.
In terms of IGR performance, 11 states met or exceeded their targets, led by Akwa Ibom, Cross River, and Ekiti. However, 19 states fell short, with Jigawa, Taraba, and Sokoto recording some of the weakest performances.
Lagos once again emerged as the top revenue-generating state, posting ₦1.28 trillion in the first half of 2025, followed by Akwa Ibom with ₦579 billion, Bayelsa with ₦291 billion, and Edo with ₦264 billion.
Experts have expressed concern over the growing debt burden, warning that without significant improvements in fiscal discipline and revenue diversification, many states may struggle to sustain development and meet future obligations.
They further caution that rising debt servicing costs could crowd out critical spending on infrastructure, education, and healthcare, thereby slowing economic growth at the subnational level.
With borrowing on the rise despite unprecedented federal allocations, Nigeria’s state governments face mounting pressure to strengthen their fiscal frameworks and reduce dependence on debt financing.
Source : Business Day
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