The Nigeria Extractive Industries Transparency Initiative (NEITI) has raised the alarm over the worrisome high debt exposure and weak fiscal management of many states, which is undermining grassroots development in the country.
The agency listed Kaduna, Ogun, Bauchi and Cross Rivers as states using between 10 to 30 per cent of their monthly earnings from the Federation Account Allocation Committee (FAAC) to service debts, leaving little to undertake developmental projects and programmes in their states.
The alert followed the release of NEITI’s latest Policy Brief — “Beyond Federal Allocations: The Cost of Borrowings and Debt Servicing at State Level in Nigeria”,
which provides fresh, evidence-based insights into how debt servicing obligations are constraining states’ capacity to fund essential services, local infrastructure, and poverty reduction initiatives.
In a statement issued on Sunday by its Director, Communication & Stakeholders Management, Mrs Obiageli Onuorah, NEITI, through the brief, cautioned against what it described as a ‘silent fiscal emergency’ quietly undermining the economic stability of Nigeria’s states.
NEITI explained that the decision to undertake the research was rooted in its statutory mandate under the NEITI Act 2007 and in line with global Extractive Industries Transparency Initiative (EITI) Standards, which require disclosures on revenue allocations and subnational transfers.
The agency noted that states in Nigeria receive substantial monthly allocations from the Federation Account, much of it derived from extractive revenues.
It pointed, however, that, when between 10 per cent and 30 per cent of these allocations are deducted at source for debt servicing, the fiscal space for grassroots infrastructure, social services, and poverty alleviation is severely diminished.
By shedding light on the scale and implications of these deductions, NEITI said it was providing citizens, policymakers, and development partners with reliable evidence to drive fiscal discipline and prudent debt management.
The agency further noted that the study addresses a critical governance gap by complementing national debt management reforms with robust subnational fiscal transparency.
According to NEITI, high and unsustainable debt servicing obligations pose risks to state-level stability and undermine the developmental impact of extractive revenues.
Through this disclosure, NEITI said it empowers citizens, civil society, and the media to hold state governments accountable for their borrowing decisions, while providing a credible, evidence-based platform for dialogue on debt sustainability thresholds, transparent loan agreements, and responsible economic governance.
“The Policy Brief reveals that between 10 per cent and 30 per cent of monthly FAAC allocations in many states are directly deducted at source for debt servicing, leaving less room for grassroots development investment.
“Kaduna State recorded the highest 2024 deduction ratio at 32.06 per cent, translating to N51.2 billion deducted from N159.7 3 billion in gross allocations.
“Ogun State followed with 27 per cent (N33 billion from N123 billion), Bauchi with 26 per cent (N37 billion from N142 billion), and Cross River with 24 per cent (N28 billion from N119 billion)”, NEITI revealed.
From the NEITI Policy Brief, these high-debt states contrast sharply with low-debt performers such as Borno with only 2.63 per cent debt reduction obligations, Jigawa 2.74 per cent, Benue -3.58 per cent and Nasarawa -3.82 per cent) debt burden exposure.
It revealed that other states with low debt burden commitments included Kebbi 4.06 per cent, Bayelsa -4.46 per cent, and Anambra 4.54 per cent, where prudent borrowing and efficient fiscal management have preserved over 95 per cent of gross allocations for direct development spending.
The NEITI Policy Brief also examined Positive Debt-to-Gross Domestic Product (GDP) management implications and the lessons that subnational governments must consider.
NEITI noted that these low-debt states provide practical models for maintaining a healthy debt-to-GDP profile while still leveraging borrowing for development where necessary.
It explained that the balance between debt and revenue was critical for preserving fiscal sovereignty and avoiding dependency on future bailouts.
On the hidden liabilities and contractual risks, NEITI said the Policy Brief also flagged contractual obligations—notably in Ogun (N6 billion) and Ondo (N7.73 billion) tied to public-private partnerships (PPP) and infrastructure projects—warning that opaque contract terms and excessive deductions could undermine future fiscal space.
Conversely, it said 18 states, including Abia, Adamawa, and Akwa Ibom reported zero contractual deductions, signaling more cautious or strategically timed borrowing.
The agency also revealed inequality in the revenue sharing formula, pointing out that in 2024, Delta State received N581.27 billion — five times the N108.32 billion received by Nasarawa.
Consequently, NEITI warned that such disparities, compounded by high debt-servicing ratios in smaller-allocation states, could deepen fiscal inequality and stall regional development.
NEITI Policy Brief also made some prescriptions for fiscal sustainability, recommending among others,, the establishment of State Debt Management Offices (DMOs) in all 36 states.
It also recommended mandatory real-time debt reporting and quarterly public disclosures as well as linking federal bailouts/support to improvements in internally -Generated Revenue (IGR) and fiscal transparency.
The agency also called for revising the revenue allocation formula to address vertical and horizontal imbalance, while equally canvassing capping contractual deductions and publishing the full terms of major borrowing agreements.
On its call for action, the NEITI Executive Secretary, Dr Ogbonnaya Orji stressed that the policy brief was “not a name-and-shame exercise, but a mirror and a map” – a mirror to reflect fiscal realities, and a map to guide states toward resilience, transparency, and equitable growth.
Orji cautioned that “Debt, when managed efficiently, can be a tool for financing development at the grassroots. But when servicing obligations consume up to a third of monthly revenues, it becomes a threat to the future of public service delivery and economic stability.”
The executive secretary affirmed that NEITI’s recommendations align with its mandate under the NEITI Act and Nigeria’s obligations under the global EITI Standards, particularly on debt transparency, subnational transfers, and revenue governance.
NEITI further pointed out that as Nigeria navigates a challenging fiscal landscape, the Policy Brief stands as both a red flag, a warning bell and a reform blueprint urging state and federal authorities to act decisively with bold reforms before debt becomes not just a burden, but a destination.
The agency said the Policy Brief, which was comprehensive with data, had been shared to the federal government including the National Assembly, relevant ministries, departments and agencies (MDAs) and the National Economic Council (NEC).
It added that the Brief had been widely circulated to the states’ Accountants General and Commissioners of Finance as well as the Governor’s Forum, noting that the NEITI Policy Brief is also available on the NEITI website.
Emmanuel Addeh, James Emejo and Peter Uzoho
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