Nigeria’s state governments have experienced one of their strongest revenue expansions in recent years, driven by fuel subsidy removal, foreign exchange reforms and improved oil receipts that boosted Federation Account Allocation Committee (FAAC) disbursements into trillions of naira.
Yet rising allocations have not translated into improved fiscal health or welfare outcomes. Instead, debt servicing — particularly on foreign obligations — is absorbing an increasing share of resources, while spending on healthcare and other human development priorities remains low. The outcome is a widening disconnect between fiscal inflows and living conditions in a country grappling with rising poverty.
Data from BudgIT’s State of States Report 2025 show that states collectively spent N2.11 trillion on debt servicing in 2024 — 26.45 percent of total expenditure. In effect, more than one-quarter of state spending went to creditors rather than infrastructure, education, or healthcare.
Total debt stock across 35 states rose by 6.87 percent to N10.57 trillion in 2024 from N10.01 trillion a year earlier. Domestic debt declined sharply by N1.99 trillion to N3.54 trillion, but foreign debt increased to $4.58 billion, exposing states to exchange-rate risk.
Twenty-four states now hold more than half of their debt in US dollars. Kaduna’s exposure stands at 97.39 percent, followed by Jigawa at 96.42 percent and Ondo at 90.04 percent — a structure that heightens vulnerability amid currency volatility. Per capita debt also edged higher to N41,766 in 2024, with Lagos recording the highest burden at N166,253 per resident.
Beyond official borrowing, legacy liabilities continue to weigh on finances, including contractor arrears of N434.87 billion, pension and gratuity backlogs of N626.8 billion, salary claims of N33.73 billion, judgment debts of N64.44 billion, and other obligations totalling N79.91 billion.
Servicing pressures intensified in 2025. National Bureau of Statistics data show states paid N455.38 billion in foreign debt service that year, up from N362.08 billion in 2024 — largely deducted directly from FAAC inflows before distribution. Lagos recorded the highest deductions at N92.80 billion, followed by Rivers, Kaduna, Ogun and Cross River. Regionally, the South-West accounted for 35.74 percent of total foreign debt service.
The strain is striking when viewed alongside the surge in FAAC allocations. Figures from the Nigeria Extractive Industries Transparency Initiative indicate disbursements rose from N8.21 trillion in 2022 to N15.26 trillion in 2024 — a 66 percent jump — before reportedly reaching about N33.27 trillion in 2025.
Despite the windfall, social investment remains thin. BudgIT reports states spent an average of just N3,483 per capita on healthcare in 2024, with no state reaching N10,000 per person. Only seven states exceeded N5,000 — a modest commitment in a country confronting fragile primary healthcare systems and rising disease burdens.
Welfare indicators reflect the disconnect. World Bank estimates suggest poverty rose to 61 percent in 2025 — about 139 million Nigerians living on less than $3 per day — with projections pointing to further increases in 2026. The trajectory indicates that higher public revenues have yet to deliver broad-based improvements in living standards.
Analysts attribute part of the gap to political incentives that prioritise visible infrastructure over long-term human capital investment. Capital projects offer immediate visibility within electoral cycles, while education and health reforms yield outcomes beyond political tenures.
Others argue accountability pressure must come from citizens, urging voters to demand credible governance commitments as elections approach.
Nigeria’s states are therefore confronted with a structural paradox: rising nominal revenues alongside expanding debt obligations and persistent poverty. With over a quarter of expenditures devoted to debt servicing and foreign exposure increasing, fiscal space for transformative social investment remains constrained.
As FAAC inflows reach historic highs, the central development question endures — whether subnational governments can translate revenue windfalls into measurable welfare gains, or whether mounting debt and spending priorities will continue to crowd out inclusive growth.
Source: BusinessDay
