Nigerian states spent a staggering ₦235.58bn servicing external debt in the first half of 2025, representing a 68.4 per cent jump from ₦139.92bn in the same period of 2024, according to data from the National Bureau of Statistics. The sharp rise underscores the growing pressure of dollar-denominated loans on state finances amid a weakening naira.

Under the Irrevocable Standing Payment Order arrangement, the Federal Government services external debts on behalf of states by making automatic deductions from their monthly allocations from the Federation Account Allocation Committee. This mechanism ensures repayment but leaves states with reduced funds for recurrent and capital expenditures.

January 2025 saw the highest single-month repayment at ₦40.09bn — a 305 per cent surge from ₦9.88bn in January 2024. Although February’s ₦39.10bn was slightly lower, it was still 59.5 per cent higher than the previous year. From April to June 2025, debt repayments stabilised at ₦39.10bn monthly, representing an 80.1 per cent increase from the ₦21.70bn recorded in those months of 2024.

Lagos State topped the repayment list with ₦49.58bn in the first half of 2025, a 52.8 per cent rise from last year’s ₦32.44bn, followed by Rivers State, which jumped over 470 per cent to ₦26.34bn. Kaduna, Ogun, and Edo rounded out the top five, collectively accounting for more than half of all state external debt servicing.

On the opposite end, Jigawa had the lowest bill at ₦1.39bn, while Benue, Yobe, Borno, Zamfara, and Plateau also recorded comparatively small repayments but still saw year-on-year increases of more than 50 per cent. The trend reflects the nationwide impact of currency depreciation on the local cost of foreign debt servicing, regardless of the size of individual state loan portfolios.

Analysts warn the ballooning debt burden could threaten fiscal stability, particularly for states with limited capacity to raise internally generated revenue. Economist Teslim Shitta-Bey criticised the over-reliance on borrowing and urged states to explore alternative funding models, such as revenue bonds and better asset management. NEITI has also raised concerns about the sustainability of states’ debt profiles, noting that some of the most indebted states receive among the lowest FAAC allocations.

The mounting cost of debt servicing, coupled with stagnant revenue growth, is squeezing state budgets, leaving less room for critical infrastructure and social investments. Without urgent reforms to boost revenue and manage borrowing more strategically, experts caution that the fiscal health of many states could deteriorate further in the coming years.