By Juliet Ukanwosu
The Nigeria Extractive Industries Transparency Initiative (NEITI) has issued an alert on what it describes as a “silent fiscal emergency” quietly undermining the economic stability of many states in the country.
This follows the release of NEITI’s latest Policy Brief tagged “Beyond Federal Allocations: The Cost of Borrowings and Debt Servicing at State Level in Nigeria,” which provides evidence-based insights into how debt servicing obligations are constraining states’ capacity to fund essential services, local infrastructure, and poverty reduction initiatives.
The Policy Brief reveals that between 10% and 30% of monthly FAAC allocations in many states are directly deducted at source for debt servicing, leaving less room for grassroots development investment.
According to the Policy Brief, Kaduna State recorded the highest 2024 deduction ratio at 32.06%, translating to ₦51.2billion deducted from ₦159.7bn in gross allocations. Ogun State followed with 27% (₦33billion from ₦123billion), Bauchi with 26% (₦37billion from ₦142billion), and Cross River with 24% (₦28billion from ₦119billion).
The Policy Brief further showed that the high-debt states contrast sharply with low-debt performers such as Borno with only 2.63% debt reduction obligations, Jigawa 2.74%, Benue -3.58% and Nasarawa -3.82%) debt burden exposure. Other States with low debt burden commitments include Kebbi 4.06%, Bayelsa -4.46%, and Anambra 4.54%, where prudent borrowing and efficient fiscal management have preserved over 95% of gross allocations for direct development spending.
NEITI explained that the decision to undertake the research is rooted in its statutory mandate under the NEITI Act 2007 and in line with global EITI Standards, which require disclosures on revenue allocations and subnational transfers.
“States in Nigeria receive substantial monthly allocations from the Federation Account, much of it derived from extractive revenues. However, when between 10% and 30% 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 is providing citizens, policymakers, and development partners with reliable evidence to drive fiscal discipline and prudent debt management,” the brief said.
NEITI further noted that the study addresses a critical governance gap by complementing national debt management reforms with robust subnational fiscal transparency. “High and unsustainable debt servicing obligations pose risks to state-level stability and undermine the developmental impact of extractive revenues,” it noted.
NEITI explained that through this disclosure, 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 NEITI Policy Brief also examined Positive Debt-to-GDP Management implications and the lessons that subnational governments must consider, pointing out that low-debt states provide practical models for maintaining a healthy debt-to-GDP profile while still leveraging borrowing for development where necessary.
“This balance between debt and revenue is critical for preserving fiscal sovereignty and avoiding dependency on future bailouts,” the Policy Brief added.