Nigeria’s states and the Federal Capital Territory recorded a sharp rise in external debt in 2025, with total subnational foreign loans climbing to nearly $5.7bn despite increased allocations from the Federation Account Allocation Committee (FAAC).
Figures released by the Debt Management Office showed that the combined external debt of the 36 states and the FCT rose from $4.80bn at the end of 2024 to $5.68bn by December 2025, representing an increase of $884.66m or 18.43 per cent.
The data revealed that 33 states and the FCT increased their foreign debt profiles during the period, while only four states — Edo, Rivers, Anambra, and Bayelsa — recorded reductions.
The development highlights the continued dependence of many state governments on external borrowing despite stronger FAAC inflows driven by higher oil prices, subsidy removal gains, and naira devaluation effects.
Among states with the largest debt increases, Katsina nearly doubled its foreign debt, while Kaduna, Kogi, Niger, Plateau, Gombe, Benue, and Yobe also posted significant rises in borrowing.
Lagos remained the state with the highest external debt stock overall, although its increase was relatively marginal compared to several other states.
The report further showed that states collectively received over N7tn from FAAC in 2025, with total allocations rising substantially compared to the previous year. However, rather than reducing liabilities, many states expanded their borrowing activities.
Foreign debt servicing by states also increased in 2025, with deductions rising to over N455bn, putting additional pressure on state finances and limiting funds available for infrastructure, salaries, healthcare, and education.
Economic experts and financial analysts warned that the growing dependence on dollar-denominated loans exposes states to greater risks as naira depreciation continues to increase repayment costs.
Analysts also urged state governments to strengthen internally generated revenue and improve fiscal management instead of relying heavily on external borrowing to fund operations and projects.
