STATE governments across Nigeria paid a total of N455.38bn in foreign debt service in 2025, marking a significant increase from the N362.08bn recorded in 2024, according to Federation Accounts Allocation Committee (FAAC) data released by the National Bureau of Statistics and analysed by this newspaper.
The year-on-year increase of N93.30bn represents a 25.77 per cent rise in foreign debt deductions, highlighting mounting repayment obligations for subnational governments.
In practical terms, this means states lost a larger share of their FAAC inflows to external loan servicing in 2025 than in the previous year, tightening fiscal space available for salaries, infrastructure, and routine governance.
An analysis of the monthly figures reveals a step-down pattern rather than a smooth curve.
In January 2025, total foreign debt service across the 36 states stood at N40.09bn, before declining slightly to N39.10bn in February — a drop of N994.96m or 2.48 per cent.
From March to July, deductions remained flat at N39.10bn monthly, indicating predictable repayment levels. A second reduction occurred in August, when total deductions dropped to N36.14bn — a N2.95bn decrease or 7.56 per cent from July.
This lower level persisted through September to December, creating extended stretches of stable deductions.
This contrasts sharply with 2024, when deductions fluctuated more dramatically. Foreign debt service stood at N9.88bn in January 2024, surged to N24.53bn in February, and peaked at N40.41bn in March. After falling to N21.70bn in April, it held steady through July before rising again to N40.09bn in August, where it remained for the rest of the year.
The burden of foreign debt service remains heavily concentrated among a handful of states. The top 10 states accounted for 68.57 per cent of the total deductions in 2025.
Lagos topped the list, with N92.80bn deducted in 2025, up from N72.32bn in 2024, an increase of N20.49bn or 28.33 per cent. Lagos alone accounted for 20.38 per cent of total state foreign debt service nationwide.
Rivers followed with N48.58bn in 2025, more than double its N23.13bn in 2024. The N25.45bn increase represents a 110.02 per cent surge, making Rivers one of the most notable movers in the data.
Kaduna ranked third, recording N47.93bn in 2025 compared to N45.59bn in 2024 — a 5.13 per cent increase.
Ogun came fourth with N25.20bn, more than doubling its 2024 figure of N11.99bn — a 110.22 per cent rise.
Cross River recorded N21.01bn, up 22.86 per cent from N17.10bn in 2024.
Oyo posted N20.17bn, representing a 12.98 per cent increase, while Edo recorded N18.70bn, up 11.78 per cent.
Bauchi paid N16.85bn, marking a 22.58 per cent rise, while Kano’s deductions climbed 24.67 per cent to N10.63bn.
Ebonyi rounded out the top 10 with N10.37bn, reflecting a 53.09 per cent increase over 2024.
By geopolitical zones, the South-West recorded the highest foreign debt service in 2025 at N162.77bn, accounting for 35.74 per cent of the national total. Lagos, Ogun, and Oyo were major contributors.
The South-South followed with N100.37bn (22.04 per cent), driven by significant repayments in Rivers, Edo, and Cross River.
The North-West ranked third with N81.97bn (18.00 per cent), largely influenced by Kaduna and Kano.
The North-East recorded N42.42bn (9.32 per cent), with Bauchi among the leading contributors in the zone.
The South-East posted N40.20bn (8.83 per cent), while the North-Central recorded the lowest at N27.65bn (6.07 per cent).
Foreign debt service deductions are made at source under the FAAC framework, reflecting the “first-line charge” principle that prioritises loan repayments before states access their allocations.
While this protects creditors and preserves Nigeria’s credit profile, it reduces discretionary revenue for states, particularly during periods of revenue volatility.
The Nigeria Extractive Industries Transparency Initiative recently warned that several states with high debt burdens rank lower in FAAC allocations, raising concerns about fiscal sustainability.
“The report noted that many states with high debt ratios were in the lower half of the FAAC allocation rankings but ranked higher for debt deductions, raising concerns about their debt-to-revenue ratios and overall fiscal health,” NEITI stated.
The Director and Chief Economist at Proshare Nigeria LLC, Teslim Shitta-Bey, cautioned that continued reliance on borrowing could destabilise state finances.
“While borrowing might seem like an easy way to run operations, it is not necessarily the right approach,” he said, urging governments to explore longer-term debt structures and revenue-backed instruments.
Shitta-Bey also advocated for a comprehensive national asset register to unlock value from underutilised assets and called on states to focus more on revenue bonds rather than general obligation bonds.
Macroeconomic analyst Dayo Adenubi stressed the importance of strengthening internally generated revenue through improved tax administration, property taxation, and enhanced VAT collection.
He noted that states must deliver on governance and public services to sustain citizen trust and tax compliance.
As foreign debt service obligations continue to claim a growing portion of FAAC inflows, analysts warn that without significant revenue reforms, states risk facing prolonged fiscal strain, with critical infrastructure and social spending potentially squeezed in the years ahead.