STATES AND THE DEBT BURDEN
The states should be prudent with their resources
In spite of substantial increase in revenue from Abuja in recent months, most of the 36 states are groaning in debts. Thirty one states are indebted to the tune of N2.57trn in domestic borrowing. According to the Debt Management Office (DMO), 10 states increased their debt burden by a worrying N418bn margin within a year. These include Rivers, Enugu, Niger, Taraba, Bauchi, Benue, Gombe, Edo, Kwara, and Nasarawa States. Only five states, including the Federal Capital Territory (FCT), managed to stay above the crippling debt obligations.
The 2018 introduction of the World Bank-assisted States Fiscal Transparency and Accountability Programme (SFTAS) was to nudge sub-national governments into imbibing fiscal transparency and tame their appetite for indiscriminate borrowing. Unfortunately, the programme has not helped. The statistics paint a disturbing signal that just as the government at the centre goes on a borrowing binge, the states are also neck-deep in debt accumulation.
Ironically, the surge in borrowing comes amid increase in federal allocations, due largely to improved oil earnings, exchange rate adjustments, and the removal of petrol subsidies. But while borrowing is a legitimate tool for financing critical infrastructural projects, our experience has shown repeatedly that the money borrowed is hardly put to good use, as much is frittered on unproductive projects. Indeed, these debts being incurred for future generations of Nigerians are expended on projects that bring little or no returns on investment. Some are abandoned outright. Much of the debts therefore end up more or less in straining local economies, as most resources are diverted to debt servicing.
The situation is worsened by hefty external debts, as many states also spend huge amounts in servicing them. According to the National Bureau of Statistics (NBS), the states collectively spent about N236bn in servicing external debt obligations in the first half of 2025. Lagos State alone spent about N50bn in the first six months of the year in debt servicing.
Thus, despite the so-called ‘boom’ in the states as a result of increased revenue from the centre, many are experiencing fiscal stress and finding it difficult in meeting their recurrent expenditures. Indeed, some states are not only owing backlog of workers’ salaries and pensions, but they are also yet to implement the National Minimum Wage of N70,000. This is despite the stagflation in the land which has pushed the cost of goods and services beyond the reach of majority of Nigerians.
Regrettably, despite the misery at their doorsteps, many of the governors are yet to adjust to the prevailing realities as they continue to indulge in ostentatious lifestyles and investing scarce public funds on frivolities. They still funnel public funds to political activities while the burial and wedding ceremonies of family members of top public officers are turned into carnivals at huge cost.
While the humongous debts hang precariously on the neck of these states, some of them are also moving to borrow more. We believe that the current challenge does not call for more borrowing, but rather creative resource management and potent revenue generation drive. The situation calls for a serious re-think of the fundamental assumption of our fiscal arrangements. The states must learn to be transparent and accountable. The feeding bottle mentality must begin to give way to a better public finance management system anchored on result-oriented revenue generation mechanism. They must raise their revenue base, and get their priorities right. In addition, they should do more to attract foreign investments as the FCT and Lagos State are doing.
