Domestic Debts of 31 Nigerian States Rise to ₦2.57 Trillion

Nigeria’s domestic debt profile has continued to expand, with fresh data showing that 31 states collectively owe ₦2.57 trillion in local borrowings as of mid-2025. The rising obligations, sourced from the Debt Management Office (DMO), underline the fiscal pressure facing subnational governments at a time of shrinking revenues and rising expenditure demands.

According to the figures, the states have leaned heavily on banks, bonds, and other credit instruments to plug budget gaps and finance critical infrastructure. Analysts note that while some states have used borrowing to stimulate development, many others appear trapped in cycles of debt servicing that limit their ability to deliver essential services.

The ₦2.57 trillion tally excludes external loans contracted by the states, which are separately managed but add to the overall burden. When combined with foreign obligations, the liabilities of many states are significantly higher, sparking concerns about sustainability and fiscal prudence.

Lagos State, Nigeria’s commercial hub, continues to account for the largest share of subnational domestic debt, reflecting its expansive infrastructure drive and relatively better access to credit markets. Other states with sizeable debt profiles include Rivers, Delta, Ogun, and Cross River, all of which have pursued large capital projects financed partly through debt instruments.

At the other end of the spectrum, some northern states such as Jigawa and Zamfara maintain comparatively lower debt levels, owing to more conservative borrowing practices and limited exposure to domestic credit markets. However, experts warn that lower borrowing does not necessarily translate into stronger fiscal health, given that many of these states still struggle with weak internally generated revenue (IGR).

The surge in domestic debt is closely linked to dwindling federal allocations, which remain the lifeline for most states. With volatile oil revenues and persistent revenue shortfalls at the centre, states are increasingly compelled to seek alternative financing. Unfortunately, weak tax systems and underdeveloped IGR structures mean many turn to loans as a quick fix.

The DMO has repeatedly cautioned states on the dangers of unsustainable debt accumulation. Director-General Patience Oniha stressed that while borrowing can be a tool for growth, it must be tied to productive investments that generate returns. She warned that debts not linked to revenue-yielding projects could worsen fiscal vulnerabilities and crowd out resources needed for social spending.

Economic experts echo this concern, highlighting that debt service costs are eating into state budgets. In some states, as much as 30 to 40 percent of monthly allocations from the Federation Account are already tied to loan repayments, leaving little room for capital projects. This has fueled worries that debt-driven development is not translating into tangible improvements in infrastructure, education, or healthcare.

Citizens across states are feeling the pinch as governments resort to higher taxes and levies to meet obligations. Small businesses in cities such as Lagos, Abuja, and Port Harcourt complain of multiple taxation, while residents in rural communities lament deteriorating public services despite rising debts. Labour unions, too, have raised concerns that mounting liabilities may threaten salary payments and pension remittances.

Nonetheless, state governments defend their borrowing, insisting it is necessary to drive development in the face of scarce resources. Lagos, for instance, argues that its borrowings finance major road networks, housing schemes, and transport infrastructure such as the Blue Line rail project. Similarly, Delta State maintains that its domestic debts have funded education reforms and health facilities.

Analysts, however, stress that the real issue is not the quantum of borrowing but the efficiency of debt utilisation. They note that states with strong fiscal discipline and robust IGR, such as Lagos, have a better chance of managing their debts sustainably. In contrast, states dependent almost entirely on federal allocations face heightened risks of default or fiscal crises if revenues dry up.

The federal government has recently urged states to embrace reforms that boost revenue generation and reduce overdependence on loans. The Ministry of Finance has also encouraged public-private partnerships (PPPs) as alternatives to debt financing for infrastructure. Additionally, fiscal responsibility laws at the state level are being pushed as mechanisms to ensure greater transparency and accountability in borrowing.

Observers argue that unless states strengthen governance, improve efficiency in spending, and expand their economic base, the rising domestic debt will continue to weigh heavily on Nigeria’s fiscal outlook. Already, global credit rating agencies have flagged Nigeria’s debt profile—federal and subnational—as a risk factor for long-term economic stability.

The ₦2.57 trillion figure is seen as both a warning and an opportunity. On one hand, it highlights the urgency of debt management reforms at the state level. On the other, it underscores the need for states to innovate around revenue mobilisation, tap into local industries, and cut wasteful expenditure.

As Nigeria grapples with broader macroeconomic challenges—ranging from inflationary pressures to currency volatility—the ability of states to balance their books without resorting to excessive borrowing will be critical. Citizens and businesses alike are watching closely, with hopes that debt will serve as a ladder to growth rather than a trap of perpetual obligations.