The Nigeria Extractive Industries Transparency Initiative (NEITI) has expressed concern about the rising debt servicing obligations of state governments in the country, describing it as a silent emergency with strong potential of undermining the fiscal system stability of the sub-national governments.
The agency, in a statement issued on Sunday by its Director of Communication and Stakeholder Management, Obiageli Onuorah, warned that rising debt servicing obligations were weakening the state governments’ capacity to provide essential services, invest in critical infrastructure, and implement poverty reduction programmes.
Obiageli stated that the warning followed the release of NEITI’s latest Policy Brief titled “Beyond Federal Allocations: The Cost of Borrowings and Debt Servicing at the State Level in Nigeria”.
The statement partly reads: “Fresh and evidence-based insights by NEITI have revealed how debt servicing obligations are constraining states’ capacity to fund essential services, local infrastructure, and poverty reduction initiatives”.
- Advertisement -
The Policy Brief findings showed that between 10 per cent and 30 per cent of monthly FAAC allocations in many states were directly deducted at source for debt servicing, leaving little or no funds for grassroots development.
According to the policy brief report, Kaduna State recorded the highest 2024 deduction ratio at 32.06 per cent, translating to N51.2bn deducted from N159.7bn in gross allocations, followed by Ogun State with 27 per cent (N33bn from N123bn), Bauchi with 26 per cent (N37bn from N142bn), and Cross River with 24 per cent (N28bn from N119bn).
Conversely, the NEITI Policy Brief showed some low-debt states 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, Kebbi, 4.06 per cent, Bayelsa, -4.46 per cent, and Anambra, 4.54 per cent, where low borrowing and efficient fiscal management and enabling the affected states to commit over 95 per cent of gross allocations to developmental projects and programmes.
To prevent fiscal instability at sub-national government level, particularly in states with high debt profiles, the NEITI recommended the establishment of State Debt Management Offices in all 36 states, Mandatory real-time debt reporting, and quarterly public disclosures.
It further canvassed: “Linking federal bailouts and support to improvements in IGR and fiscal transparency, Revising the revenue allocation formula to address vertical and horizontal imbalances, capping contractual deductions and publishing the full terms of major borrowing agreements.”
Commenting on the report’s findings, the NEITI Executive Secretary, Ogbonnaya Orji, stressed that the Policy Brief was not a name-and-shame exercise, but a mirror and a map reflecting fiscal realities, and a map to guide states toward resilience, transparency, and equitable growth.
Orji cautioned: “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.”
He maintained that the NEITI’s recommendations aligned with its mandate under the NEITI Act and Nigeria’s obligations under the global Extractive Industries Transparency Initiative (EITI) standards, particularly on debt transparency, subnational transfers, and revenue governance.
Meanwhile, Obiageli, also stated: “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 Policy Brief, which is comprehensive with data, has been shared with the Federal Government, including the National Assembly, relevant MDAs, and the National Economic Council. It has been widely circulated to the State’s Accountant General and Commissioners of Finance as well as the Governor’s Forum”, she added.
