A surge in Federation Account inflows has enabled states and local governments to reduce their bank borrowings by N547.52 billion in one year, according to data obtained by a Punch report.
The Central Bank of Nigeria’s latest Quarterly Statistical Bulletin reveals that the banking sector’s claims on state and local governments fell from N2.68 trillion in June 2024 to N2.13 trillion in June 2025, representing a 20.4% year-on-year decrease.
The data shows that states and local governments jointly received N12.67 trillion in 2025, up from N8.96 trillion in 2024, excluding the 13% derivation fund for oil-producing states. This represents a 41.4% surge in statutory inflows to the two tiers of government.
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Experts say the increase in FAAC allocations has given states and local governments the opportunity to reduce their debt burden. Patience Oniha, Director-General of Nigeria’s Debt Management Office, has urged state governments to prioritize tax revenue generation and explore Public-Private Partnerships to fund infrastructure projects.
“Borrowing should not be the major way to source funds,” Oniha said. “You must increase your revenues by increasing your tax revenues.”The Nigeria Extractive Industries Transparency Initiative (NEITI) has also highlighted the financial strain on states due to debt repayments, despite record-high disbursements from the Federation Accounts Allocation Committee.
As states and local governments continue to receive increased allocations, experts say they must adopt sustainable fiscal practices to ensure long-term economic stability.
