Nigeria recorded a sharp rise in external debt in 2025, pushing total subnational foreign obligations to $5.68 billion

Nigeria’s 36 states and the Federal Capital Territory (FCT) recorded a sharp rise in external debt in 2025, with fresh borrowings pushing total subnational foreign obligations to $5.68 billion, highlighting growing fiscal pressures despite improved revenue inflows.

Data released by the Debt Management Office (DMO) shows that external debt rose from $4.80 billion as of December 2024, reflecting a year-on-year increase of $884.66 million, or 18.43 percent.

The surge underscores a continued reliance on foreign financing by state governments grappling with infrastructure demands, rising recurrent expenditures, and fiscal sustainability challenges.

Broad-Based Borrowing Across States

Analysis indicates that 33 out of 37 subnational entities increased their external debt positions during the review period, representing nearly 90 percent of all states and the FCT. Only four states — Edo, Rivers, Anambra, and Bayelsa — recorded marginal declines.

The total increase across borrowing states stood at $944.12 million, significantly outweighing the $59.46 million reduction recorded by the four states, reinforcing a widespread borrowing trend.

Among the most notable increases:

Katsina nearly doubled its external debt, rising by $100.16 million (99.7%)
Kaduna added $59.19 million, bringing its total to $684.29 million

Niger and Kogi more than doubled their debt stocks

Plateau posted the highest percentage increase at 187.24%

Meanwhile, Lagos — Nigeria’s most indebted state externally — recorded only a modest increase of $4.83 million, suggesting a more cautious borrowing strategy.

Rising Revenues, Yet Growing Debt

The debt expansion comes despite a significant increase in allocations from the Federation Account Allocation Committee (FAAC).

State governments received N7.315 trillion in 2025, up from N5.186 trillion in 2024 — a 41 percent increase. When derivation revenues are included, total inflows rose to approximately N8.93 trillion.
The revenue boost was driven by higher oil prices, gains from naira devaluation, and fiscal space created by petrol subsidy removal.

However, analysts note that increased inflows have not translated into debt reduction, with many states opting to expand borrowing instead.

Debt Servicing Pressure Mounts

Rising debt levels have also translated into higher repayment obligations. Subnational governments paid N455.38 billion in foreign debt servicing in 2025, up 25.77 percent from N362.08 billion in the previous year.

This growing burden is narrowing fiscal space for critical expenditures such as salaries, infrastructure, healthcare, and education.

According to the Nigeria Extractive Industries Transparency Initiative, several states with high debt burdens also rank low in FAAC allocations, raising concerns about their debt-to-revenue ratios and long-term fiscal sustainability.

Experts Warn of Fiscal Risks

Economists and policy analysts have raised concerns about the sustainability of rising external borrowing, particularly given currency volatility.
Taiwo Owoeye of Ekiti State University warned that dollar-denominated debt exposes states to exchange rate risks, noting that naira depreciation increases repayment costs and diverts resources from development.

Similarly, Teslim Shitta-Bey, chief economist at Proshare Nigeria LLC, cautioned against over-reliance on borrowing, urging governments to adopt better balance sheet management and explore alternative financing models.

Vahyala Kwaga, Country Director of BudgIT, also highlighted a structural concern, noting that increased federal allocations may be discouraging states from improving internally generated revenue (IGR).

Structural Challenges Persist

The rising debt trend reflects deeper structural issues within Nigeria’s fiscal federalism framework, where states remain heavily dependent on federal allocations while facing growing expenditure demands.
Macroeconomic analyst Dayo Adenubi emphasised the need for states to strengthen revenue generation, cut waste, and prioritise investments that yield long-term economic returns.

Outlook

With external borrowing continuing to rise alongside increasing debt servicing obligations, Nigeria’s subnational governments face mounting pressure to balance development needs with fiscal sustainability.

Analysts warn that without stronger revenue reforms and prudent debt management strategies, the current trajectory could constrain economic growth and limit the ability of states to respond to future shocks.