Nigeria States’ External Debt Jumps to $5.7bn in 2025 Despite Higher FAAC Allocations Meta Description (SEO):

Nigeria’s subnational governments significantly increased their reliance on foreign borrowing in 2025, with total external debt for the 36 states and the Federal Capital Territory rising to $5.68bn.

Data from the Debt Management Office showed that the figure climbed from $4.80bn recorded at the end of 2024, marking a year-on-year increase of $884.66m, or 18.43 per cent.

An analysis revealed that 33 out of the 37 subnational entities recorded higher external debt levels during the period, highlighting a widespread trend of increased borrowing. Only four states—Edo, Rivers, Anambra, and Bayelsa—posted marginal reductions.

The increase comes despite a substantial rise in Federation Account Allocation Committee (FAAC) disbursements to states, driven by higher oil revenues, naira devaluation gains, and the removal of petrol subsidies.

Overall, states that increased their borrowing accounted for a combined $944.12m rise in external loans, while the four states that reduced their debt only managed a total decline of $59.46m—underscoring a significant imbalance.

Among the biggest borrowers, Katsina nearly doubled its external debt with a $100.16m increase, while Kaduna added $59.19m to its debt stock. Kogi and Niger also recorded sharp increases, with their debts more than doubling in percentage terms.

Plateau recorded the highest percentage increase at 187.24 per cent, followed by Gombe and Yobe, which also posted steep rises. Oyo, Imo, Sokoto, and Jigawa saw notable increases as well.

Lagos, however, maintained a relatively stable position as the most indebted state externally, recording only a marginal rise of $4.83m, suggesting a more cautious borrowing approach compared to others.

Despite improved revenues, analysts say the continued rise in external debt raises concerns about fiscal discipline and long-term sustainability. States collectively received over N7.3tn from FAAC in 2025, rising to nearly N9tn when derivation revenue is included.

However, a growing portion of these funds is being used to service debt. External debt servicing rose to N455.38bn in 2025, up from N362.08bn in 2024, further tightening fiscal space for development projects and governance.

Experts warn that heavy reliance on dollar-denominated loans exposes states to exchange rate risks, especially amid a weakening naira. Rising debt obligations could also limit their ability to invest in critical sectors such as infrastructure, healthcare, and education.

Stakeholders have called on state governments to improve internally generated revenue, cut waste, and adopt more sustainable fiscal strategies rather than relying heavily on borrowing.