States borrow N458bn in H1 2025 despite higher FAAC inflows, fuelling concern over mounting debt and soaring repayment costs

At least 20 states resorted to fresh loans amounting to about N457.66bn between January and June, even as their collective external debt servicing costs jumped by 68.4 per cent within the same period.

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Data reveal that states spent N235.58bn on external debt servicing in the first six months of this year, up from N139.92bn in the corresponding period of 2024.

Analysts say the surge highlights the fiscal strain imposed by dollar-denominated obligations, worsened by the depreciation of the naira.

According to the National Bureau of Statistics, N10.13tn was shared among the three tiers of government in H1 2025, with the states collectively receiving N3.425tn — a 42.96 per cent rise from the N2.396tn recorded a year earlier.

Monthly allocations for states climbed significantly, from N379bn in January 2024 to N590.6bn in January 2025, with similar jumps sustained in subsequent months.

Despite this windfall, fresh borrowing continued. Oyo State led with a domestic loan of N93.4bn, followed by Kaduna’s N62bn foreign loan and Lagos’ N50bn domestic facility.

Others on the foreign borrowing list included Gombe (N20.3bn), Zamfara (N28bn), Katsina (N20.7bn), Kebbi (N7.4bn), and Jigawa (N10.98bn).

Bauchi borrowed both foreign and domestic loans totalling N26.3bn, while states such as Borno (N18.2bn), Taraba (N18.7bn), Sokoto (N15bn), Niger (N25.8bn), Kwara (N2.18bn), and Ekiti (N19.8bn) also tapped external financing. Ondo, Abia, Ebonyi, and Enugu borrowed N5.6bn, N7bn, N10.9bn, and N10.7bn respectively.

Economists warn that such reliance on external borrowing increases fiscal risks. Professor Taiwo Owoeye of Ekiti State University noted that every depreciation of the naira inflates repayment obligations, diverting revenues away from development projects.

“By taking on more foreign obligations, many states risk mortgaging future federal allocations to meet repayment schedules, leaving little space to fund critical sectors such as health, education, and infrastructure,” Owoeye cautioned.

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The mounting debt burden has reignited debate on fiscal discipline, with calls for states to explore innovative revenue sources and reduce their dependence on loans.