KEY POINTS

• Nigeria’s 36 states and the Federal Capital Territory owed almost ₦4.6 trillion in domestic debt at the end of June 2026.
• Lagos, Delta, the FCT, Rivers and Edo accounted for 54% of the combined debt.
• Lagos held 26% of the debt but had an estimated revenue capacity of ₦3.7 trillion, more than twice Delta’s ₦1.6 trillion.
• States’ ability to raise their own revenue will be crucial to managing debt and meeting repayment obligations.

MAIN STORY

Nigeria’s subnational domestic debt reached almost ₦4.6 trillion at the end of June 2026, with Lagos, Delta, the Federal Capital Territory (FCT), Rivers and Edo accounting for 54% of the total, according to the Debt Management Office’s latest public debt data.

The combined debt of the 36 states and the FCT represented about 5% of Nigeria’s ₦91.6 trillion domestic public debt stock. The Federal Government accounted for the remaining ₦87 trillion, or 95%.

Although state borrowing remains relatively small compared with the country’s total domestic debt, the figures reveal differences in the ability of individual states to manage their obligations. States have varying levels of internally generated revenue, federal allocations and other income, which influence how much they can borrow and repay.

Lagos accounted for the largest share of subnational domestic debt at 26%, followed by Delta at 8%, the FCT at 7.8%, Rivers at 7.7% and Edo at 4.7%.

The concentration of debt in these jurisdictions broadly reflects differences in their revenue-generating capacity. Lagos, despite being the most indebted state, also generates substantially more revenue than its peers.

Using 2025 internally generated revenue (IGR) as a guide and annualising federal allocations received in the first half of 2026, the report estimates Lagos’ revenue capacity at ₦3.7 trillion. This is more than twice Delta’s estimated ₦1.6 trillion.

Lagos’ debt-to-revenue-capacity ratio stands at 0.3 times, while Delta and Rivers each have a ratio of 0.2 times. The lower ratios for Delta and Rivers are largely linked to stronger federal allocations relative to their overall revenue base.

Lagos also has a stronger position when its internally generated revenue is considered separately. Its ₦1.8 trillion IGR in 2025 was roughly equal to the combined revenue raised by the 31 lowest-earning states and almost matched the total generated by the next six highest-earning states.

This larger revenue base gives Lagos greater capacity to meet its obligations from income raised within the state and reduces its exposure to changes in federal oil revenue and crude oil prices.

The report estimates that the combined domestic debt of the states and the FCT was equivalent to about 0.9% of Nigeria’s projected gross domestic product for 2026. However, the relatively small size of the aggregate debt does not mean every state faces the same level of financial risk.

THE ISSUES

The main concern is not simply how much states owe, but whether they can consistently generate enough revenue to repay what they borrow while funding public services.

States with stronger internally generated revenue have more control over their finances because they rely less on money distributed by the Federal Government. States that depend heavily on federal allocations are more exposed to changes in the revenue available for distribution, particularly when oil prices or production affect government earnings.

A state can therefore have a smaller debt stock but still face pressure if its income is weak or unpredictable. Conversely, a state with larger debt may be better placed to repay it if it has a stronger and more reliable revenue base.

For residents and businesses, weak state finances can limit the money available for roads, healthcare, education and other public services. Heavy borrowing costs can also reduce the funds left for these priorities.

WHAT’S NEXT

The report expects the recent 350-basis-point reduction in the Monetary Policy Rate to about 23% to gradually reduce domestic borrowing costs for states and make debt repayments more affordable.

However, lower interest rates alone will not resolve differences in states’ financial strength. States will still need to increase internally generated revenue, control recurrent spending and manage new borrowing carefully.

BOTTOM LINE

Nigeria’s state domestic debt is relatively small compared with the Federal Government’s, but the ability to repay it varies widely. Stronger internally generated revenue, rather than debt size alone, will determine which states can manage their obligations without putting greater pressure on public services.