13% Derivation Fund Helps Oil-Producing States Slash Domestic Debt by N611bn Despite Rising Criticism

Oil-producing states in Nigeria have cut their combined domestic debt by about N610.84bn between June 2023 and March 2025, thanks to record inflows from the 13% derivation fund, according to an analysis of Debt Management Office (DMO) data. The nine oil states’ domestic debt fell from N1.66tn in mid-2023 to N1.05tn in early 2025, reducing their share of the country’s total subnational debt from 28.6% to 27.2%. Delta State led the decline, slashing its debt by over 55% to N204.72bn, while Akwa Ibom, Bayelsa, Imo, and Ondo also posted significant reductions. However, Rivers State bucked the trend, increasing its domestic debt by more than 60% to N364.39bn.

Despite this progress, debt repayments placed a heavy burden on the states’ internally generated revenue (IGR). Data from budget reports show that the nine oil-producing states generated about N1.39tn in IGR between Q3 2023 and mid-2025. Nearly 44% of this amount—N610.84bn—went to servicing domestic debt. Rivers recorded the highest IGR at N507.23bn, followed by Delta and Akwa Ibom. However, smaller states such as Imo and Abia remain highly dependent on federal allocations, as their IGR remains weak relative to fiscal needs.

The revenue boost came from N1.67tn received as derivation allocation within two years, from July 2023 to June 2025, according to the National Bureau of Statistics (NBS). The first half of 2025 alone accounted for over 40% of this total, signaling an unprecedented windfall for oil-producing states. Delta earned the largest share at N520.27bn, followed by Bayelsa with N332.05bn, Akwa Ibom with N330.27bn, and Rivers with N309.77bn. Combined, these four states controlled nearly 90% of the allocation, leaving smaller producers with marginal amounts.

However, critics argue that the massive inflows have not translated into tangible development. Political figures and civil society groups accuse state governments of poor transparency and mismanagement. In Delta, opposition leaders allege that despite rising IGR and FAAC inflows, infrastructure and social services remain stagnant. Similar complaints have surfaced in Edo and Anambra, where residents face high taxation even as states receive billions in derivation funds. Activists in the Niger Delta are calling for direct allocation to oil-producing communities to curb alleged corruption and ensure that funds address environmental and economic challenges.

Analysts warn that despite record allocations, oil-producing states still suffer from structural weaknesses, including overreliance on federal revenue and inadequate economic diversification. While debt reduction is a positive sign, experts stress that without stronger fiscal discipline and transparent governance, the benefits of the 13% derivation fund may not yield long-term development for the Niger Delta region.

Source: Punch