The combined domestic debt portfolio of Nigeria's 36 states and the Federal Capital Territory (FCT) recorded a significant increase in the second quarter of 2025, rising by nearly N95 billion within just three months.
Quarterly Debt Movement and Long-Term Trend
According to the latest data released by the Debt Management Office (DMO), the total sub-national domestic debt stock moved from N3.87 trillion in the first quarter of 2025 to N3.96 trillion in the second quarter. This represents an increase of N94.79 billion, or 2.45 per cent.
However, when viewed from a longer-term perspective, the picture shows improvement. Compared to the same period in 2024 (Q2), the total debt actually decreased by 7.1 per cent from N4.27 trillion. An analysis of the debt profile since the start of the current administration in 2023 reveals a general declining trend. This is largely attributed to the substantial boost in revenue shared from the federation account to states following the removal of the fuel subsidy.
The debt stock has fluctuated over this period: it dropped from N5.82 trillion in June 2023 to N5.74 trillion in Q3 2023, rose slightly to N5.86 trillion in Q4 2023, then began a more consistent decline to N4.07 trillion in Q1 2024. After a rise to N4.27 trillion in Q2 2024, it fell to N4.21 trillion in Q3 and further to N3.97 trillion in Q4 2024, continuing down to N3.87 trillion in Q1 2025 before the recent Q2 increase.
State-by-State Drivers and FAAC Inflows
The recent quarterly debt surge was primarily driven by three states. Lagos State's debt increased by a massive N167.31 billion, while Cross River and Taraba states saw their debts grow by N32.16 billion and N11 billion respectively compared to Q1 figures.
Conversely, some states managed to reduce their debt burdens during the same period. Imo State cut its debt by N24.11 billion, Akwa Ibom by N9.39 billion, and Bayelsa by N7.54 billion.
This debt accumulation occurs against the backdrop of increased federal allocations. Data from the Office of the Accountant General of the Federation shows that in Q2 2025, all states and the FCT collectively received N1.89 trillion from the Federation Accounts Allocation Committee (FAAC). The monthly breakdown shows N624.72 billion in April, N617.53 billion in May, and N648.78 billion in June.
Expert Warnings and the National Picture
Financial experts have raised serious concerns, noting that despite higher FAAC inflows, many states are grappling with financial crises due to low Internally Generated Revenue (IGR) and a lack of fiscal discipline, forcing them to borrow to finance budgets. They warn that borrowed funds are often spent on projects with no direct impact on citizens, leading to a structural crisis that demands urgent reforms in borrowing practices and stronger oversight.
Prof. Godwin Oyedokun of Lead City University, Ibadan, highlighted a critical issue: "Large portions of state revenue are allocated to debt servicing and interest payments, rather than essential sectors like health, education, and infrastructure projects." He added that this inability to adequately fund public services results in poor infrastructure, inadequate healthcare, and educational facilities, ultimately degrading citizens' quality of life.
The state debt situation mirrors the national level, where Nigeria's total public debt stock stood at N152.40 trillion ($99.66 billion) as of 30 June 2025. The country spent a staggering N4.44 trillion on debt servicing in Q2 2025 alone, a 24.1 per cent increase from projections. A breakdown shows N1.71 trillion was used to service domestic debt, while external debt service consumed N2.70 trillion, far exceeding estimates.
