The combined domestic debt of Nigeria’s 36 states and the Federal Capital Territory rose by N94.79bn within three months, climbing from N3.87tn in the first quarter of 2025 to N3.96tn in the second quarter, latest figures from the Debt Management Office have shown.
The increase represents a 2.45 per cent rise quarter-on-quarter, although the states’ total domestic debt was still 7.1 per cent lower than the N4.27tn recorded in the corresponding period of 2024.
An analysis of sub-national debt profiles released by the DMO indicated that the overall debt burden of states has followed a largely downward trajectory since 2023, a trend attributed to higher revenues from the Federation Account following the removal of fuel subsidy.
The debt stock declined from N5.82tn as of June 30, 2023, to N5.74tn in the third quarter of that year, before edging up to N5.86tn in the fourth quarter.
It, however, fell sharply to N4.07tn in the first quarter of 2024, rose again to N4.27tn in the second quarter, and then declined to N4.21tn and N3.97tn in the third and fourth quarters respectively. By the first quarter of 2025, states’ domestic debt had reduced further to N3.87tn before the latest increase.
The DMO data showed that the rise recorded in the second quarter of 2025 was largely driven by increased borrowing by Lagos, Cross River and Taraba states. Lagos’ domestic debt rose by N167.31bn within the period, while Cross River and Taraba recorded increases of N32.16bn and N11bn respectively.
In contrast, Imo, Akwa Ibom and Bayelsa states reduced their debt profiles by N24.11bn, N9.39bn and N7.54bn respectively during the same period.
Meanwhile, figures from the Office of the Accountant General of the Federation revealed that states and the FCT received a total of N1.89tn from the Federation Accounts Allocation Committee in the second quarter of 2025. In April, net allocations stood at N624.72bn, dipped slightly to N617.53bn in May, and rose to N648.78bn in June.
Despite the improved inflows, analysts noted that many states are still grappling with financial stress due to weak internally generated revenue and poor fiscal discipline, forcing them to rely on borrowing to fund their budgets.
Economic experts warned that a significant portion of borrowed funds is often channelled into projects with limited direct impact on citizens, raising concerns about sustainability.
They cautioned that the growing debt profile of states could trigger a structural fiscal crisis unless urgent reforms are implemented to strengthen borrowing practices and oversight.
A professor of accounting at Lead City University, Ibadan, Prof. Godwin Oyedokun, said a substantial share of state revenues is being consumed by debt servicing, leaving little for development.
“Large portions of state revenue are allocated to debt servicing and interest payments, rather than essential sectors like health, education and infrastructure,” he said.
According to him, inadequate funding of public services has continued to undermine infrastructure development and the quality of life of citizens.
The situation at the sub-national level mirrors the rising debt burden at the federal level. Nigeria’s total public debt stood at N152.40tn as of June 30, 2025, representing a N3.01tn or 2.01 per cent increase from the N149.39tn recorded at the end of March.
The country also spent N4.44tn on debt servicing in the second quarter of 2025, N862.57bn higher than the N3.58tn projected for the period. Of this amount, N1.71tn was used to service Federal Government domestic debt, while external debt servicing gulped N2.70tn, exceeding projections by over 60 per cent.
Experts warned that without stronger fiscal discipline and reforms, rising debt obligations at both state and federal levels could further constrain spending on critical sectors and slow economic development.
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