FG Deducts States’ N800bn Allocations to Pay Foreign Debt

The Federal Government has deducted N800 billion from state allocations to service Nigeria’s mounting foreign debt, a move that has sparked concerns among state governments over dwindling resources for development projects. The deductions were made from the monthly Federation Account Allocation Committee (FAAC) disbursements, further straining the finances of many states already grappling with revenue shortfalls.

Government officials defended the action, stating that the deductions were necessary to meet Nigeria’s international debt obligations and avoid default. The country’s rising debt profile has put pressure on its foreign reserves, making timely debt servicing a priority to maintain investor confidence and economic stability.

Several state governors have expressed frustration over the deductions, arguing that they significantly reduce funds available for salaries, infrastructure, healthcare, and education. Some states, particularly those with low internally generated revenue (IGR), are now struggling to meet financial commitments, including payment of workers’ salaries and execution of capital projects.

Economic analysts warn that continued deductions without alternative revenue sources could push states further into fiscal crises. They have urged the federal government to implement policies that boost non-oil revenue, improve tax collection, and reduce dependency on external borrowing.

With Nigeria facing persistent economic challenges, including inflation, currency depreciation, and low oil production, fiscal pressures on both federal and state governments are expected to persist. The situation underscores the urgent need for comprehensive economic reforms to reduce debt reliance and ensure sustainable public finance management.