December 29, 2025/CSL Report
Recent data from the Central Bank of Nigeria (CBN) shows a significant decline in state and local government borrowings from commercial banks, with outstanding claims falling from ₦2.68 trillion in June 2024 to ₦2.13 trillion by June 2025, a reduction of about ₦547.5 billion (≈ 20.4%) over the year. This trend reflects a deliberate effort by subnational governments to repay costly bank loans, driven largely by improved revenue flows and a persistently high-interest rate environment in 2024.
The decline was gradual through much of 2024 and early 2025, but saw a pronounced contraction by mid-year, suggesting that states leveraged stronger inflows from the Federation Accounts Allocation Committee (FAAC) to unwind debt obligations.
Subnational finances have been buoyed recently by increased FAAC transfers. According to NEITI’s quarterly reviews and government releases, FAAC disbursements reached ₦15.26 trillion in 2024, a 43% increase from the previous year, driven by fiscal reforms, the removal of fuel subsidies, and adjustments to the foreign exchange regime that boosted oil revenue remittances.
Within this total, state governments received ₦5.81 trillion, while local councils garnered ₦3.77 trillion, underscoring a substantial uplift in subnational revenue. FAAC allocations continued strongly into 2025. For example, in June 2025 alone, ₦1.818 trillion was shared among the three tiers of government, with states receiving over ₦600 billion. This sustained revenue uptick provided essential fiscal space for states to service maturing obligations and improve liquidity.
That said, the fiscal landscape remains nuanced. A significant share of the increase in FAAC allocations in recent times has been driven by higher global oil prices and the boost to Naira-denominated oil revenues following the devaluation of the Naira. These factors are inherently volatile and may not be sustained if commodity prices soften or exchange-rate pressures re-emerge.
As a result, states with rigid expenditure structures and elevated wage bills remain particularly exposed to revenue shocks. Against this backdrop, the recent reduction in subnational borrowing should be viewed as a positive but conditional development. It reflects the prudent use of temporary revenue windfalls rather than a fundamental strengthening of fiscal capacity at the state and local government level.
There is a risk that short-term, monetized revenue gains may obscure deeper structural weaknesses, notably persistent dependence on volatile oil-related transfers and the slow growth of internally generated revenue (IGR). Strengthening fiscal discipline, expanding IGR, and diversifying revenue sources at the subnational level will be critical to achieving durable fiscal sustainability and improving the long-term credit profiles of states and local governments.
Click here to download full report: CSL Nigeria Daily – 29 December 2025- Debt.pdf
