At least seven Nigerian states spent an average of 190 per cent of their Internally Generated Revenue (IGR) on debt servicing in the first quarter of 2025, spotlighting the worsening fiscal crisis gripping subnational governments.
An analysis of Q1 2025 Budget Implementation Reports for Bayelsa, Adamawa, Benue, Niger, Kogi, Taraba, and Bauchi shows that debt service obligations not only exceeded IGR across the board, but in some cases were more than four times higher than what the states were able to generate locally.
In total, the seven states spent ₦98.71 billion on debt servicing during the period, a steep increase of ₦33.48 billion (or 51 per cent) from the ₦65.24 billion recorded in the previous quarter (Q4 2024).
By contrast, their combined IGR rose marginally from ₦44.05 billion in Q4 2024 to ₦51.92 billion in Q1 2025, a modest gain that was overshadowed by surging debt repayment costs.
FAAC as a Lifeline
The states relied heavily on federal allocations to bridge the gap. Disbursements from the Federation Account Allocation Committee (FAAC) rose from ₦360.75 billion in Q4 2024 to ₦419.86 billion in Q1 2025, an increase of ₦59.11 billion.
Of that amount, ₦46.80 billion was required to cover the difference between debt servicing costs and IGR, reflecting a growing dependence on federal support for basic fiscal survival.
Benue State: A Case Study in Escalation
Benue State’s situation was particularly striking. Debt service costs ballooned from ₦1.99 billion in Q4 2024 to a staggering ₦21.40 billion in Q1 2025. Although its IGR rose from ₦1.98 billion to ₦5.18 billion, the state still needed ₦16.22 billion from its ₦58.71 billion FAAC allocation to make up the difference. In essence, Benue spent 413 per cent of its IGR on debt servicing, one of the highest ratios in the country.
Other State Profiles
- Kogi State spent ₦23.88 billion on debt servicing, 248 per cent of its ₦9.63 billion IGR. The state reported a total expenditure of ₦110.13 billion, with debt repayments taking up 21.7 per cent of its spending. Officials said ₦98.8 billion in legacy debts have been cleared in 15 months, but current figures suggest fiscal fragility persists.
- Adamawa State generated ₦4.07 billion in Q1 but spent ₦8.42 billion on debt servicing — 206.9 per cent of IGR.
- Bayelsa State spent ₦13.55 billion servicing debt, 107.9 per cent of its ₦12.55 billion IGR. Though it received ₦120.55 billion from FAAC, the state continues to face IGR shortfalls.
- Niger State used up ₦12.43 billion in debt repayments, slightly above its ₦12.13 billion IGR. Debt servicing accounted for 23.2 per cent of its total Q1 expenditure.
- Taraba State posted a bleak ratio, spending ₦7.83 billion on debt repayment, 232 per cent of its ₦3.38 billion IGR. It had to rely on ₦4.45 billion of its ₦52.39 billion FAAC allocation.
- Bauchi State recorded ₦4.97 billion in IGR, yet spent ₦11.20 billion on debt ,225 per cent of its revenue. In Q4 2024, the state had spent ₦16.68 billion on debt servicing, showing continued strain despite some improvement.
Crowded-Out Development Spending
Across the states, debt servicing accounted for between 6 per cent and 32 per cent of total government spending, reducing available funds for infrastructure, health, education, and other developmental priorities.
The over-reliance on FAAC disbursements and escalating debt obligations have raised red flags about the sustainability of state finances. Despite efforts to raise IGR, most states remain unable to fund basic operations let alone repay debts without external support.
Mounting Future Burdens
The fiscal outlook remains bleak. A previous report showed that eight states are expected to pay ₦424.28 billion in debt service and borrow an additional ₦1.21 trillion between 2025 and 2026. This highlights the long-term implications of Nigeria’s subnational debt spiral.
Proshare Nigeria’s Chief Economist, Teslim Shitta-Bey, warned that the rising subnational debt burden could threaten the fiscal health of many states in the years ahead. He advised against excessive borrowing and called for alternative financing strategies, including asset-backed investments and the revival of state revenue bonds.
“Borrowing might seem like an easy way to run operations, but it is not necessarily the right approach,” he said. “We need better balance sheet management and long-term financing models that resemble equity rather than traditional debt.”
As Nigeria’s state governments face mounting pressure to service legacy debts amid slow-growing revenues, observers warn that urgent reforms in debt management, revenue diversification, and financial accountability are needed to avert a looming subnational debt crisis.
