States across the country owe contractors and retirees a combined N1.06tn in outstanding obligations despite receiving record revenue inflows in 2024, according to new data from BudgIT’s 2025 State of States report.

The organisation found that contractor arrears amounted to N434.87 billion, while pension and gratuity arrears stood at N626.81 billion, bringing the total unpaid obligations to N1.06 Trillion. The figures underline persistent fiscal stress at the subnational level, even in a year when federal allocations more than doubled and many states reported higher internal revenues.

A total of 30 states reported owing either contractors or retirees in the 2024 fiscal year, based on the BudgIT report. Twenty-six states reported contractor arrears, while 27 states had pension and gratuity arrears owed to retirees.

Only three states, Borno, Kano, and Nasarawa, reported zero liabilities in both categories, making them the only states without outstanding obligations to contractors or retirees in 2024. According to an analysis of the data, Kaduna State is the largest debtor to contractors and retirees in 2024, owing a combined N139.36bn.

The state reported contractor arrears of N56.07bn and pension and gratuity arrears of N83.29bn, the highest pension backlog in the country. Ogun State followed with N107.18bn in total arrears, driven mainly by a massive N81.54bn pension and gratuity backlog and N25.64bn in unpaid contractor obligations.

Benue State ranked third with combined arrears of N99.68bn, split between N27.42bn owed to contractors and N72.25bn in pension arrears. Edo State came fourth with N95.46bn, including N37.54bn in contractor arrears and N57.92bn in unpaid pensions.

Enugu State followed closely, reporting a combined N90.18bn, made up of N54bn owed to contractors and N36.18bn in pension liabilities. Imo State owed N57.25bn, Akwa Ibom N43.71bn, Delta N42.35bn, and Oyo N41.97bn, while Plateau completed the top bracket with combined arrears totalling N40.98bn, driven by N16.03bn in contractor arrears and N24.95bn in pension liabilities.

These 10 states collectively account for almost half of the N1.06tn burden carried by subnational governments. At the lower end of the ranking, Kano and Nasarawa reported no arrears, making them the least indebted states to contractors and pensioners in 2024.

Lagos, which recorded only N48.74m in contractor arrears and no pension backlog, ranked third-lowest. Ebonyi followed with N88.89m, then Borno with N1.10bn, Jigawa with N1.79bn, and Katsina with N2.22bn.

Yobe owed N3.99bn, Ondo N4.77bn, and Kogi N6.52bn, completing the list of the 10 states with the smallest arrears nationwide. The PUNCH observed that while some northern states, such as Kano, Nasarawa, and Jigawa, maintained minimal arrears, others, like Kaduna, Benue, and Plateau, accumulated large pension backlogs over the years.

The report noted that total liabilities for the 35 states analysed — excluding Rivers, which had no audited accounts due to the 2025 state of emergency — stood at N1.24tn.

On the reason for excluding Rivers, the report read, “Due to the political climate in Rivers State, the state government did not produce an audited financial statement for 2024, also, given that the Federal High Court nullified the 2024 budget of the state and counted it as void, any reporting done by the state on that budget is also regarded as unconstitutional. Hence, the decision to exempt Rivers state from the 10th Edition of State of States.”

Besides contractor and pension arrears, states owed N33.74bn in salary and staff claims, N62.33bn in judgment debts, and N73.25bn in other liabilities.

“About N434.87bn is owed in contractor arrears, N626.81bn is owed in pension and gratuity arrears, N33.74bn is owed in salary and other staff claims, N62.33bn is owed in judgement debt and other pending litigation, and other liabilities amount to N73.25bn,” the report read.

BudgIT warned that these outstanding obligations, if left unmanaged, could undermine state-level fiscal sustainability, delay capital projects, and weaken public confidence, especially among vulnerable retirees depending on monthly benefits.

Despite the backlog, states received unprecedented revenue in 2024. Gross FAAC allocations surged to N11.38tn, up from N5.4tn in 2023, driven largely by subsidy removal and exchange-rate adjustments. Yet the report observed that arrears persisted because many states continued to prioritise recurrent expenditure over clearing historical obligations.

BudgIT argued that rising personnel costs, increased overheads, and expanding political commitments may have constrained the capacity of some state governments to settle legacy debts.

The PUNCH further observed that four states carried contractor and pension liabilities that far exceed what they generated internally within the same year, raising fresh concerns about subnational fiscal sustainability. The four states were Kaduna, Benue, Adamawa, and Taraba, with arrears that significantly outpaced their 2024 Internally Generated Revenue.

Kaduna’s total arrears stood at N139.36bn, more than double its 2024 IGR of N70.07bn. The arrears were driven mainly by the state’s pension and gratuity backlog of N83.29bn, alongside contractor debts of N56.07bn. This means Kaduna owed almost N2 in unpaid obligations for every N1 it generated internally.

Benue showed similar vulnerability. The state generated N20.92bn internally in 2024, yet owed N99.68bn in contractor and pension arrears—almost five times its IGR. Pension liabilities alone amounted to N72.25bn, while contractor arrears totalled N27.42bn, leaving Benue’s obligations far beyond its revenue capacity.

The situation suggests that the state would need nearly five full fiscal years of IGR, assuming no other expenditures, to clear its outstanding debts. Benue’s case reflects a structural mismatch between revenue capacity and expenditure commitments built up over several administrations.

Adamawa also recorded liabilities significantly above its IGR. The state generated N20.30bn in 2024, but owed N27.5bn in pension and gratuity arrears. Although Adamawa posted zero contractor arrears in the 2024 table, its pension debt alone exceeded its IGR by about 35 per cent, demonstrating a rising retirement-cost burden relative to the state’s revenue base.

This gap, while smaller than those of Kaduna and Benue, still points to a fragile fiscal structure that could widen if pension obligations continue to accumulate. Taraba’s imbalance was even more pronounced relative to its revenue size. The state generated N16.06bn in IGR but owed a combined N23.53bn, including N226.37m to contractors and N23.30bn in pension and gratuity arrears.

Taraba’s liabilities exceeded its internally generated revenue by more than N7bn, amounting to an overhang of approximately 46 per cent above what the state earned from domestic sources.

The disproportionate pension burden indicates a long-running accumulation of retirement obligations that the state has been unable to clear. The Nigerian Pension Commission earlier said only 17 states out of Nigeria’s 36 states are currently implementing the Contributory Pension Scheme.

The commission noted that 12 states have not started at all, while seven states are at various stages of establishing their pension bureaus.

Speaking at the Second Run 2025 Consultative Forum for States and the FCT held in Benin, Edo State, the Director-General of PenCom, Omolola Oloworaran, who was represented by the Commissioner for Inspectorate, Samuel Uwandu, said, “17 states out of the 36 states in the country are currently implementing the contributory pension scheme. Twelve states have not started at all, while seven states are at various stages of establishing their pension bureaus.”

The CPS was introduced by the Pension Reform Act of 2004, and under this law, employees and employers jointly contribute to a Retirement Savings Account for each worker, making pensions more sustainable.