Concerns have been raised about the sustainability of debt at the state level in Nigeria, as many states struggle to meet key financial obligations, such as paying civil servants’ salaries and compensating contractors on time. According to the BusinessDay Research and Intelligence Unit (BRIU), while debt levels vary across states, there is a pressing need for some states to reassess how they manage their finances.

Debt financing has become a common fiscal tool for the Nigerian government at all levels, allowing them to fund capital projects beyond their financial capacity. These debts are time-sensitive and must be repaid with interest. The government can borrow domestically by selling treasury securities or borrowing from the Central Bank, or externally, although external borrowing poses the risk of repayment in foreign currency, particularly the U.S. dollar.

Data from the Debt Management Office (DMO) shows Nigeria’s total debt stock increased by 13.78% from N19.6 trillion in the first half of 2017 to N22.3 trillion in the first half of 2018. Of this, domestic debt accounted for 70% and external debt for 30%.

A closer look at state-level debt reveals troubling figures, with many states carrying unsustainable debt loads relative to their internally generated revenue (IGR). For example, Lagos State had the highest debt at N961.1 billion as of June 2018, with an IGR of N196.3 billion. Delta State followed with a debt of N242.2 billion and an IGR of N29.8 billion.

Other heavily indebted states in the first half of 2018 included Rivers (N215.5 billion), Akwa Ibom (N194.5 billion), Cross River (N184.2 billion), Osun (N166.8 billion), Edo (N154.3 billion), Ekiti (N147.7 billion), Kaduna (N146.8 billion), and Bayelsa (N140.5 billion).

When comparing the top 10 states with the highest debt to those with the highest IGR, only Lagos, Rivers, Delta, Akwa Ibom, Edo, and Kaduna appear on both lists, raising concerns about the debt sustainability of Cross River, Osun, Ekiti, and Bayelsa, given their lower IGR.