States and local government councils reduced their bank borrowings by about ₦547.52bn within one year, buoyed by sharply higher Federation Account Allocation Committee (FAAC) inflows, new data from the Central Bank of Nigeria (CBN) have shown.
Findings from the CBN’s latest Quarterly Statistical Bulletin indicate that banks’ claims on state and local governments fell from ₦2.68tn in June 2024 to ₦2.13tn in June 2025, representing a 20.4 per cent year-on-year decline in sub-national indebtedness to commercial and merchant banks.
Further analysis shows that banks’ exposure stood at ₦2.73tn in January 2024 but dropped to ₦2.44tn by January 2025, meaning about ₦292bn was cleared within that period. The outstanding balance rose slightly to ₦2.59tn in February 2025 and eased to ₦2.55tn in March before stabilising around ₦2.44tn–₦2.45tn in April and May.
A sharp adjustment occurred in June 2025, when exposure plunged to ₦2.13tn — the largest single-month reduction of the year. Month-on-month, this represented a ₦313bn drop from May’s ₦2.45tn, signalling an aggressive effort by sub-national governments to unwind bank obligations.
Analysts link the debt reduction to a combination of elevated interest rates and significantly higher FAAC allocations. Throughout 2024, the CBN’s Monetary Policy Committee (MPC) pursued aggressive tightening, raising the Monetary Policy Rate from 18.75 per cent at the start of the year to 27.50 per cent by November to curb inflation and stabilise the naira.
In 2025, the MPC largely held rates at 27.50 per cent before delivering its first rate cut in five years in September, trimming the benchmark to 27.00 per cent as inflationary pressures moderated. The rate was maintained in November, keeping borrowing costs high but slightly more accommodative.
At the same time, FAAC inflows to states and local governments surged. Data from the Office of the Accountant-General of the Federation show that both tiers jointly received ₦12.67tn in 2025, up from ₦8.96tn in 2024 — a ₦3.71tn increase, or 41.4 per cent year-on-year. Excluding the 13 per cent derivation fund, the rise remains substantial.
When derivation is included, total receipts to states and councils rose from ₦10.31tn in 2024 to ₦14.28tn in 2025, translating to an additional ₦3.98tn, or 38.6 per cent. The derivation component alone increased from ₦1.35tn to ₦1.62tn.
State governments were the biggest beneficiaries in absolute terms, with allocations climbing from ₦5.19tn in 2024 to ₦7.31tn in 2025 — a ₦2.13tn or 41 per cent increase. Local government councils also saw allocations rise from ₦3.77tn to ₦5.35tn, up ₦1.58tn or 41.8 per cent.
Monthly figures underscore the shift. States received ₦396.69bn in January 2024, compared with ₦498.50bn in January 2025, with allocations peaking at ₦727.17bn in October 2025. Local governments recorded similar gains, rising from ₦288.93bn in January 2024 to ₦361.75bn in January 2025 and crossing the ₦500bn mark in the final quarter of 2025.
Overall, total FAAC allocations to all three tiers of government increased from ₦13.91tn in 2024 to ₦20.28tn in 2025, while total distributable revenue, including derivation, rose from ₦15.26tn to ₦21.89tn.
The Nigeria Extractive Industries Transparency Initiative (NEITI) has, however, cautioned that high debt burdens still pose fiscal risks for some states. In a recent statement, NEITI noted that several states with heavy debt obligations ranked low in FAAC allocations but high in debt deductions, raising concerns about debt sustainability and capacity to fund development projects.
Similarly, the Director-General of the Debt Management Office, Ms Patience Oniha, has urged state governments to reduce reliance on borrowing. Speaking at a World Bank–supported workshop in Lagos, she advocated stronger tax revenue mobilisation and greater use of Public-Private Partnerships to fund infrastructure.
“Borrowing should not be the major way to source funds,” Oniha said, adding that PPPs could ease fiscal pressure, accelerate project delivery and stimulate economic growth.
Comments