In the first six months of 2025, Nigeria’s 36 states collectively shelled out a staggering 235.58 billion naira to service their external debts, marking a sharp 68.4 percent increase from the 139.92 billion naira paid during the same period in 2024.
This surge, amounting to an additional 95.65 billion naira, highlights the growing financial pressure on state governments as they navigate economic headwinds, particularly the weakening of the local currency.
The federal government manages these payments on behalf of the states through a mechanism that deducts the required amounts from monthly revenue allocations before distributing the funds.
This process ensures obligations are met but leaves states with less money for essential services like healthcare, education, and infrastructure projects. For many residents across the country, this means potential delays in road repairs, school upgrades, or even salary payments for public workers.
Breaking down the numbers month by month reveals uneven but mostly upward trends. January 2025 saw the highest outflow at 40.09 billion naira, a whopping 305 percent jump from just 9.88 billion naira the previous year.
February and subsequent months through June hovered around 39.10 billion naira each, with increases ranging from 59.5 percent in February to 80.1 percent in the April-to-June quarter compared to 2024. Analysts point out that while some months like March showed a slight dip due to one-off large payments in the prior year, the overall pattern underscores persistent currency fluctuations.
Among the states bearing the brunt of this rise, Lagos led with 49.58 billion naira in payments, up 52.8 percent from 32.44 billion naira last year. Rivers State followed closely, disbursing 26.34 billion naira, a dramatic 470 percent increase from 4.62 billion naira in 2024, reflecting its heavy reliance on foreign loans for development initiatives.
Kaduna came third at 24.47 billion naira, a modest 6 percent rise, while Ogun and Edo rounded out the top five with 12.57 billion and 10.18 billion naira, respectively, both seeing substantial hikes. Together, these five states accounted for over half, 52.3 percent of the national total, illustrating how economic powerhouses are disproportionately affected.
On the other end of the spectrum, states like Jigawa (1.39 billion naira, up 54.3 percent), Benue (1.44 billion naira, up 62.1 percent), and Yobe (1.46 billion naira, up 77 percent) recorded the lowest payments, though their percentage increases were still notable.
Northern states such as Borno and Zamfara also saw payments more than double in some cases, straining already limited budgets.
Regionally, the South-West, driven by Lagos and Ogun, faces exposure from infrastructure loans tied to foreign currencies. In the South-South, where Rivers operates amid oil-rich dynamics, states like Edo and Cross River (which paid 9.82 billion naira, up 24.8 percent) are feeling similar pinches.
Northern regions, with Kaduna at the forefront and Bauchi paying 8.13 billion naira (up 28.5 percent), highlight a nationwide issue.
The root cause? Experts attribute the spike largely to the naira’s depreciation against major currencies like the dollar, which inflates the local equivalent of debt repayments even if the original amounts in foreign denominations stay the same.
This currency volatility has been a lingering challenge since economic reforms aimed at stabilizing the forex market, but it has instead amplified costs for dollar-denominated loans.
The implications are far-reaching. In the first quarter alone, debt servicing costs rose 51 percent from the previous quarter, with some states spending up to 190 percent of their internally generated revenue on these obligations.
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For instance, seven states, including Bayelsa, Adamawa, and Bauchi, exceeded their earnings by significant margins, some over 300 percent. This fiscal squeeze reduces funds available for critical areas, potentially slowing economic growth and affecting everyday Nigerians who rely on state services.
In places like Rivers State, where ambitious projects in ports and energy sectors often depend on external financing, residents might notice slower progress on local developments, echoing concerns in other regions.
Economists warn that without measures to hedge against currency risks or boost revenue diversification, states could face even tougher choices ahead, balancing debt duties with the needs of their people.
Overall, this trend signals a call for more prudent borrowing and stronger fiscal policies at the state level to shield against global economic shifts. As Nigeria pushes for sustainable development, managing these debts will be key to ensuring that growth benefits reach the grassroots.
