The Nigeria Extractive Industries Transparency Initiative (NEITI) has warned that unsustainable debt servicing at the state level is quietly eroding the fiscal capacity needed to deliver essential services, fund infrastructure, and reduce poverty.

In its latest Policy Brief, “Beyond Federal Allocations: The Cost of Borrowings and Debt Servicing at State Level in Nigeria,” NEITI described the situation as a “silent fiscal emergency” and urged states to embrace prudent borrowing, transparent debt management, and stronger fiscal discipline.

NEITI’s findings reveal that between 10 per cent and 30 per cent of monthly allocations from the Federation Account—largely derived from extractive revenues—are being deducted at source in many states to service debts, severely limiting grassroots development funding. Kaduna tops the 2024 list with 32.06 per cent deductions (N51.2bn from N159.7b), followed by Ogun (27per cent), Bauchi (26per cent), and Cross River (24%).

By contrast, low-debt states such as Borno (2.63%), Jigawa (2.74%), Benue (3.58%), and Nasarawa (3.82%) have preserved over 95percent of their allocations for direct investment through prudent fiscal management.

The Policy Brief also warned about hidden liabilities in contractual obligations—such as Ogun’s ₦6bn and Ondo’s ₦7.73bn tied to PPP projects—cautioning that opaque terms could further erode fiscal space. Eighteen states, including Abia, Adamawa, and Akwa Ibom, reported zero contractual deductions, indicating more cautious borrowing practices.

NEITI also highlighted revenue distribution inequalities, noting that in 2024, Delta State’s N581.27bn allocation was five times Nasarawa’s N108.32bn, a gap that—when combined with high debt servicing—could deepen regional development disparities.

To address the crisis, NEITI recommends establishing State Debt Management Offices in all 36 states, mandatory real-time debt reporting and quarterly public disclosures, linking federal bailouts to improved internally generated revenue (IGR) and transparency, revising the revenue allocation formula to reduce disparities, and capping contractual deductions and publishing loan terms in full.

“This is not a name-and-shame exercise, but a mirror and a map,” said NEITI Executive Secretary, Orji Ogbonnaya Orji. “Debt, when managed well, can drive development. But when up to a third of revenues go into servicing obligations, it becomes a threat to public service delivery and economic stability.”

NEITI’s Policy Brief has been shared with the Presidency, National Assembly, National Economic Council, state governments, and finance commissioners, serving as both a warning and a blueprint for reform to avert a looming debt trap.