Nigerian states spent a total of N455.38 billion servicing foreign debts in 2025, marking a sharp increase from N362.08 billion recorded in 2024, according to Federation Accounts Allocation Committee (FAAC) figures released by the National Bureau of Statistics (NBS).
An analysis of the data shows that foreign debt deductions rose by N93.30 billion year-on-year, representing a 25.77 per cent increase, further tightening the fiscal space of subnational governments.
The rising deductions meant that a larger portion of FAAC allocations to states was committed to external loan repayments in 2025, leaving less funding available for salaries, infrastructure projects, and routine governance.
The monthly breakdown for 2025 revealed a largely stable but step-down pattern in deductions. Foreign debt servicing stood at N40.09 billion in January, before declining slightly to N39.10 billion in February.
From March to July, deductions remained flat at N39.10 billion monthly, suggesting predictable repayment schedules. Another significant reduction occurred in August, when deductions dropped to N36.14 billion, a level that persisted through December.
This contrasts with 2024, when deductions fluctuated more sharply early in the year before stabilising in the later months.
The data also showed a strong concentration of foreign debt obligations among a few states. The top 10 states accounted for about 68.57 per cent of total foreign debt servicing in 2025.
Lagos State recorded the highest deductions at N92.80 billion, up from N72.32 billion in 2024, accounting for over 20 per cent of the national total.
It was followed by Rivers State with N48.58 billion, more than double its 2024 figure, while Kaduna State ranked third at N47.93 billion.
Other major contributors included Ogun (N25.20bn), Cross River (N21.01bn), Oyo (N20.17bn), Edo (N18.70bn), Bauchi (N16.85bn), Kano (N10.63bn), and Ebonyi (N10.37bn).
Regional distribution
By geopolitical zones, the South-West recorded the highest foreign debt service burden at N162.77 billion, accounting for 35.74 per cent of the national total.
The South-South followed with N100.37 billion, while the North-West recorded N81.97 billion. The North-East (N42.42bn), South-East (N40.20bn), and North-Central (N27.65bn) trailed behind.
Fiscal sustainability concerns
Foreign debt servicing under FAAC deductions is treated as a “first-line charge,” meaning repayments are deducted at source before allocations reach states, ensuring creditors are paid but reducing discretionary funds available to governments.
The Nigeria Extractive Industries Transparency Initiative (NEITI) has warned that rising debt obligations are putting increasing pressure on state finances despite higher FAAC disbursements.
According to NEITI, several highly indebted states also rank low in FAAC allocations, raising concerns about their fiscal sustainability and debt-to-revenue ratios.
Economic analysts have also cautioned that rising debt service obligations could crowd out spending on critical sectors if revenue generation does not improve.
The Director and Chief Economist at Proshare Nigeria LLC, Teslim Shitta-Bey, noted that many governments rely excessively on borrowing without properly managing their balance sheets.
He advocated longer-term financing structures and improved asset utilisation, while also urging states to explore revenue bonds instead of general obligation borrowing.
Similarly, macroeconomic analyst Dayo Adenubi emphasised the need for states to boost internally generated revenue through stronger tax enforcement, improved consumption levels to enhance VAT collections, and better delivery of public services to strengthen taxpayer compliance.
Analysts warn that without significant revenue reforms, the growing debt service burden could continue to strain subnational finances in the coming years.
