Nigerian States Return to Borrowing Despite FAAC Windfall: Debt Hits N4 Trillion
Nigerian states are returning to heavy borrowing even as allocations from the Federation Account Allocation Committee (FAAC) have soared by 161% over the past three years. Analysts warn that this rise in debt comes despite the significant windfall, highlighting slow growth in internally generated revenue (IGR) and raising concerns over fiscal sustainability. The shift marks a reversal of a prior trend where state debt had steadily declined.
According to the National Bureau of Statistics (NBS), domestic debt among Nigeria’s 36 states and the Federal Capital Territory fell from N5.8 trillion in December 2023 to N3.8 trillion in March 2025. However, by September 2025, total domestic debt climbed back to N4 trillion. States with the highest domestic debt include Lagos (N1.04 trillion), Rivers (N381 billion), Delta (N247 billion), Enugu (N195 billion), and Ogun (N168 billion). External debt also rose from $4.35 billion to $4.81 billion, with Lagos leading at $1.05 billion.
FAAC disbursements have steadily increased under the Tinubu administration, rising from N2.8 trillion in 2022 to N7.315 trillion in 2025. Despite these record inflows, experts say states are still relying on borrowing to fund their budgets. Economist Ishaq Ibrahim noted that the N200 billion increase in debt between March and September 2025 indicates that states’ fiscal reforms have yielded “easy gains,” but growing expenditures are outpacing revenue growth.
Economic expert Uzor Joseph highlighted that many states remain heavily dependent on FAAC allocations, with internally generated revenue making up only 26% of total earnings on average. Only Lagos state demonstrates a healthier balance, generating over 70% of its revenue internally. Joseph emphasized that long-term debt sustainability depends on expanding IGR, leveraging resources, technology, and public-private partnerships, while reducing reliance on foreign loans.
The current trajectory underscores the need for Nigerian states to implement stricter fiscal discipline. Rising debt coupled with growing expenditures, including minimum wage adjustments and costly infrastructure projects, threatens financial stability. Experts agree that effective transparency frameworks, targeted investment in high-impact projects, and strategic revenue mobilization are critical to ensuring that states can meet development goals without falling deeper into debt.
source: Business day