States and local government councils in Nigeria have cut their bank borrowings by roughly N547.52 billion over the past year, according to the Central Bank of Nigeria’s Quarterly Statistical Bulletin. This decline in debt is largely due to a surge in Federation Account inflows, which have risen sharply as revenue allocations increased. Consequently, the banking sector’s exposure to state and local governments fell from N2.68 trillion in June 2024 to N2.13 trillion in June 2025, a 20.4 % year‑on‑year reduction. The drop is notable, especially given the high interest rates that have persisted throughout the year.
The Central Bank’s Monetary Policy Committee aggressively tightened policy in 2024, raising the Monetary Policy Rate to 27.5 % to curb inflation and stabilize the exchange rate. Meanwhile, Federation Account allocations grew substantially: states and local governments together received N12.67 trillion in 2025, up from N8.96 trillion in 2024, a 41.4 % increase in statutory inflows. The Office of the Accountant‑General of the Federation reports that states obtained N7.31 trillion in 2025—a 41 % rise from N5.19 trillion in 2024—while local government councils received N5.35 trillion, a 41.8 % increase from N3.77 trillion in 2024. Monthly allocations throughout the year were consistently higher than the previous year, enabling sub‑national governments to rely less on borrowing to fund their activities.
Despite these record‑high disbursements from the Federation Accounts Allocation Committee, the Nigeria Extractive Industries Transparency Initiative notes that many states still experience financial strain due to debt repayments, raising concerns about fiscal sustainability and the capacity to fund critical projects. Patience Oniha, Director‑General of the Debt Management Office, has urged state governments to adopt public‑private partnerships and prioritize tax‑revenue generation over borrowing for infrastructure projects.
Overall, the reduction in bank debt by states and local governments signals a shift toward more prudent fiscal management. However, challenges related to fiscal sustainability and debt management persist, making it essential for sub‑national governments to continue exploring alternative funding options and to focus on revenue generation to ensure long‑term financial stability.
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