Foreign Debt Payments Hit States By 68% Increase – Debt Management Office

Nigerian states have been hit with a significant increase in the cost of servicing their foreign debts, with payments surging by 68% in the first half of 2025 compared to the same period in 2024. This alarming figure, based on data from the Debt Management Office (DMO) and the National Bureau of Statistics (NBS), highlights the mounting pressure on state finances, largely due to the continued depreciation of the naira.

According to reports, states collectively spent approximately ₦235.58 billion on external debt servicing during this period, a sharp jump from the ₦139.92 billion recorded in the first half of 2024. This increase is a direct consequence of the weakening local currency against the dollar and other foreign currencies in which the loans are denominated.

The DMO’s data shows that the servicing of these debts is handled by the Federal Government through an Irrevocable Standing Payment Order (ISPO) system. This arrangement allows for automatic deductions from states’ monthly allocations from the Federation Account Allocation Committee (FAAC) before the funds are disbursed. As the naira’s value declines, the local currency equivalent of the debt payments in foreign currencies increases, placing a heavier burden on state budgets.

The impact of this surge is not evenly distributed. Lagos State, with a significant foreign debt portfolio for large-scale infrastructure projects, remains the largest contributor to the overall debt servicing bill. Other states, such as Rivers, Kaduna, Ogun, and Edo, have also seen substantial increases in their foreign debt payments, reflecting their varying levels of exposure to exchange rate fluctuations.

For many states, a large portion of their monthly FAAC allocations is now being consumed by debt servicing, leaving less money for critical capital projects and recurrent expenditures. This trend raises serious concerns about the fiscal sustainability of many states and their ability to fund essential services and development initiatives. Experts have suggested that states should focus on generating more internally generated revenue and exploring alternative, more stable funding mechanisms to reduce their reliance on foreign loans and mitigate the risks associated with exchange rate volatility.