Nigerian States Spend ₦235.58bn on External Debt Servicing in First Half of 2025

Nigeria’s 36 states collectively spent about ₦235.58 billion on servicing external debt in the first six months of 2025, representing a steep 68.4 per cent increase over the ₦139.92 billion recorded during the same period in 2024.

The analysis, based on Federal Account Allocation Committee (FAAC) disbursement data released by the National Bureau of Statistics (NBS), shows how the depreciation of the naira has sharply inflated the local currency cost of dollar-denominated loan repayments.

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How External Debt Servicing Works for States

External debt servicing by the states is handled centrally by the Federal Government under an Irrevocable Standing Payment Order (ISPO). Once a loan is approved and a subsidiary agreement signed, the Office of the Accountant-General of the Federation—working with the Federal Ministry of Finance and the Central Bank of Nigeria—automatically deducts the agreed repayment amount from the state’s monthly FAAC allocation before releasing the balance.

This means states have little flexibility in adjusting or delaying repayments, regardless of revenue conditions or currency market volatility.

Sharp Rise in First Half of 2025

The biggest jump came at the start of the year.

• January 2025: ₦40.09 billion was deducted for external debt servicing—more than four times the ₦9.88 billion paid in January 2024, representing a 305 per cent year-on-year increase.
• February 2025: States paid ₦39.10 billion, up 59.5 per cent from ₦24.53 billion in February 2024.
• March 2025: ₦39.10 billion was paid, slightly less than the ₦40.41 billion in March 2024, when some states had cleared large maturing obligations.
• April–June 2025: Each month saw a consistent ₦39.10 billion in deductions, up 80.1 per cent from ₦21.70 billion in the same months of 2024.

This steady pattern in the second quarter suggests some stability in exchange rates, but still reflects the much higher naira cost of foreign repayments compared to last year.

States with the Highest Debt Servicing Bills

Five states accounted for ₦123.14 billion, or 52.3 per cent of the total external debt servicing in the first half of 2025.

1. Lagos State – ₦49.58 billion (up 52.8 per cent from ₦32.44 billion in 2024).
   Lagos has the largest foreign debt profile, tied to extensive infrastructure projects.
2. Rivers State – ₦26.34 billion (up more than 470 per cent from ₦4.62 billion in 2024).
3. Kaduna State – ₦24.47 billion (up 6 per cent from ₦23.09 billion in 2024).
4. Ogun State – ₦12.57 billion (almost triple ₦4.29 billion in 2024).
5. Edo State – ₦10.18 billion (up 72.6 per cent from ₦5.90 billion in 2024).

These figures highlight how a few states carry a disproportionate share of Nigeria’s subnational foreign debt.

States with the Lowest Debt Servicing Bills

At the other end of the scale:

• Jigawa State – ₦1.39 billion (up 54.3 per cent from ₦900.54 million).
• Benue State – ₦1.44 billion (up 62.1 per cent from ₦890.16 million).
• Yobe State – ₦1.46 billion (up 77 per cent from ₦823.59 million).
• Borno State – ₦1.52 billion (up 128.1 per cent from ₦668.07 million).
• Zamfara State – ₦1.56 billion (up 75 per cent from ₦891.82 million).
• Plateau State – ₦1.81 billion (up 125.8 per cent from ₦803.28 million).

Even though these states’ absolute payments are smaller, their year-on-year increases still reflect the heavy impact of currency depreciation.

Regional Patterns in Foreign Debt Exposure

• South-West: Lagos and Ogun dominate repayments, a sign of aggressive use of foreign borrowing for infrastructure.
• South-South: Rivers, Edo, and Cross River (₦9.82 billion, up 24.8 per cent from ₦7.87 billion) post some of the highest repayments in the country.
• North: Kaduna leads in foreign debt servicing, followed by Bauchi (₦8.13 billion, up 28.5 per cent).

Interestingly, significant foreign debt is not confined to the wealthiest states. States like Cross River and Bauchi—without Lagos-level economies—still carry substantial foreign loan obligations.

The Exchange Rate Effect

Most of Nigeria’s external debts are dollar-denominated (or in other foreign currencies). This means:

• If the naira depreciates, the amount owed in foreign currency stays the same, but
• The naira cost of repayment rises—often sharply.

This is exactly what happened between 2024 and 2025. Even without taking on new loans, states have had to set aside much larger naira amounts to cover the same foreign currency obligations.

For states with already limited internally generated revenue (IGR), this creates budgetary strain, reducing funds available for salaries, infrastructure, and social services.

Implications for State Finances

1. Reduced Fiscal Space: Higher debt servicing costs mean less money for development projects.
2. Risk to Essential Services: If revenues don’t keep pace, states may struggle to fund education, healthcare, and security adequately.
3. Potential for More Borrowing: Ironically, higher repayments can push states to borrow more—sometimes in naira at high interest rates—to bridge budget gaps.
4. Need for Debt Restructuring: Some analysts suggest states should explore renegotiating terms, converting high-cost loans to concessional ones.

If exchange rates remain stable in the second half of 2025, monthly repayments may hold at around ₦39 billion. But any further weakening of the naira will inflate these costs again—potentially pushing total annual external debt servicing by states above ₦500 billion for the first time.

This sharp rise in subnational debt servicing underlines a broader challenge for Nigeria’s fiscal management: balancing the benefits of foreign-funded development projects with the exchange rate risks that make paying for them more expensive over time.

For now, the numbers paint a sobering picture—one in which the currency market, not just budget discipline, is dictating how much Nigerian states must spend on repaying what they owe abroad.