Despite the provisions of the Fiscal Responsibility Act on fiscal prudence and borrowing limits, it appears that many states are flagrantly breaching those extant rules. According to a recent report by the Debt Management Office (DMO), at least 10 states had collectively increased their domestic stock profile by a staggering N417.76billion within the past one year. This obtains in spite of receiving significantly higher revenue allocations from the Federation Account Allocation Committee (FAAC) in recent times.
As of December 2023, figures from the DMO showed that the total debt stock of the 36 states and the Federal Capitals Territory (FCT) stood at N11.4trillion.The figure was driven by both domestic and external borrowings. Of this amount, 13 state governors were reported to have borrowed N226.8billion from the domestic market, and N510billion from external creditors. The latest quarterly review of the debts accumulated by state government shows that Rivers, Enugu, Niger, Taraba, Bauchi, Benue, Gombe, Edo, Kwara, Nasarawa and Lagos states, raised their combined domestic debt profile from N884.9billion in the Q1’2024 to N1.30trillion in the corresponding quarter of 2025.
This represents 47.2 per cent year-on-year increase. There are fears over growing fiscal indiscipline in many states and increasing reliance on borrowing and its potential implications for economic sustainability and debt servicing of the debts of the state and federal governments. A breakdown of the total indebtedness of the states reveals that domestic debt of the ten states also rose on a quarterly basis – from N1.28trillion in Q4 2024 to N1.3trillion in Q12025 – indicating an additional N42.3billion debt in less than four months. This marks a 3.4 per cent quarter-on-quarter increase. Perhaps more dampening is the fact that some of the states have more than doubled their domestic debt in the last one year, thereby putting their states in a cliffhanger. Some of the states were unable to meet their basic obligations such as regular payment of salaries of civil servants because some of the debts were expended on consumption rather than production. Besides, some of governors reportedly indulge in luxury lifestyle at the detriment of the welfare of the citizens.
The surge in borrowing comes just as FAAC disbursements continue to increase significantly as a result of windfall accruing from a combination of subsidy removal, improved oil earnings in recent months, and exchange rate adjustments. There is no doubt that borrowing can be a legitimate tool for financing critical projects. However, it is worrying that some states pay little or no attention to the priorities of their states while indulging in binge borrowing.
In many of the heavily indebted states, there is little on ground to show for the huge borrowing. The unhealthy trend in borrowing does not augur well for the economies of the states. Some of the loans are unproductive debts that have not impacted on the welfare of the people and the development of the states. A recent report from the Nigeria Extractive Industries Transparency Initiative (NEITI) showed that the amount shared by the three tiers of government increased by N1.93trillion in the last six months. The removal of fuel subsidy has reportedly yielded 40 per cent boost in federal revenue. According to the Minister of Finance, Wale Edun, the removal of fuel subsidy has led to a monthly revenue inflow of over N1trillion. This is a remarkable increase compared to the previous average of N650billion before subsidy removal. Edun also disclosed that the monthly revenue shared by the three tiers of government has equally increased significantly. Yet, states and federal governments are still obsessed with borrowing from both domestic and external sources.
As the financial profile of most states has shown, few will be solvent and may be hamstrung to discharge their obligations without the monthly allocations from FAAC, thereby piling up their debt portfolio. Without appropriate cautionary measures, this could further worsen the economy of most of the states that are already in crisis. Therefore, let state governments borrow cautiously and spend prudently. Altogether, state governors should look inwards and diversify their economy through mechanized agriculture.
Unfortunately, many states have not really tapped their agricultural resources to boost their Internally Generated Revenue (IGR) and reduce the over-reliance on the monthly FAAC from Abuja. If the borrowing spree of the sub-nationals persists, it will strain their financial state and divert limited resources meant for development efforts to unprofitable sectors and crowd out capital projects and investments. With Nigeria’s debt profile put at N149trillion, the states’ debt is at risk of being unsustainable.
