Despite rising allocations from the federation account, at least 20 Nigerian states took on fresh loans amounting to about N458 billion in the first half of 2025, piling more pressure on their already strained finances.

Reports show that the new debts, sourced from both domestic and foreign lenders, came even as states spent a staggering N235.58 billion on external debt servicing within the same period. This figure represents nearly a 70 per cent jump compared to N139.92 billion recorded in the first half of 2024, largely fueled by the depreciation of the naira against the dollar.

According to National Bureau of Statistics data, N10.13 trillion was distributed among the federal, state, and local governments in the first six months of 2025. States received N3.43 trillion, a 43 per cent increase over the N2.40 trillion they got during the same period last year. Monthly allocations rose sharply, ranging from N530 billion to N607 billion in 2025, compared to N366 billion to N462 billion in 2024.

However, despite these higher revenues, states still turned to borrowing. Oyo State led the pack with a N93.4 billion domestic loan. Kaduna followed with N62 billion in foreign borrowing, while Lagos secured N50 billion locally. Bauchi combined domestic and foreign loans worth N26.3 billion, while other states such as Gombe, Zamfara, Katsina, Kebbi, Jigawa, Borno, Taraba, Sokoto, Niger, Kwara, Ekiti, Ondo, Abia, Ebonyi, and Enugu also took out billions in external loans.

Economic experts warn that the trend puts states in a vulnerable position. Professor Taiwo Owoeye of Ekiti State University cautioned that most of the loans are dollar-denominated, meaning any fall in the value of the naira automatically raises repayment costs. He noted that this forces states to divert larger portions of their allocations toward debt servicing, leaving less money for essential development projects such as health, education, and infrastructure.

Owoeye further stressed that the growing reliance on foreign loans risks mortgaging the future, as states may have to use future federal allocations to settle today’s obligations. This, he said, could cripple their ability to respond to emergencies or pursue independent financial planning.