Nigeria's state and local governments concluded 2024 with a combined debt of N4.09 trillion owed to banks and the Central Bank of Nigeria (CBN). This figure, recently released in the CBN's quarterly statistical bulletin, indicates a marginal reduction of N112 billion, or 2.7 percent, compared to the N4.20 trillion recorded in December 2023, suggesting a modest improvement in the overall subnational debt profile.
A detailed analysis of the December 2024 data reveals that commercial and merchant banks held the largest share of this debt, accounting for N2.41 trillion, or 58.9 percent of the total. This represents a decline from the N2.64 trillion owed to them at the end of 2023, signifying a reduction of N233 billion within the year. Conversely, the exposure to the Central Bank saw an increase, rising from N1.56 trillion in 2023 to N1.68 trillion in 2024, now constituting 41.0 percent of the total subnational debt. This upward trend suggests an increasing reliance by states and local governments on direct funding from the nation's apex bank. Notably, the bulletin also captured, for the first time, an exposure of N3.77 billion from non-interest banks to subnational entities, while primary mortgage and microfinance banks reported no outstanding claims.
Fluctuating Borrowing Patterns Throughout 2024
The year 2024 was marked by fluctuating trends in subnational borrowing. January saw total claims by Nigerian financial institutions on state and local governments rise to N4.29 trillion, a 20.01 percent increase from N3.57 trillion in January 2023. The claims then experienced a dip, falling to N4.10 trillion in February and N4.09 trillion in March, before a more significant decline to N3.52 trillion in April. This April figure represented a 14.07 percent month-on-month decrease and was the only year-on-year contraction of the year at 5.68 percent.
Throughout most of the year, the bulk of the credit to state and local governments was provided by the Central Bank and commercial and merchant banks. In January, the CBN held N1.56 trillion of the claims (36.38 percent), while commercial and merchant banks accounted for N2.73 trillion (63.62 percent). This pattern of distribution largely persisted, though April witnessed a notable shift where the CBN's share rose to 45.17 percent of total claims, and commercial bank exposure dropped to 54.71 percent. This coincided with a period of reduced aggregate claims, possibly reflecting a tighter lending appetite from commercial institutions.
Following the April decline, total claims rebounded strongly in May, increasing by 14.74 percent to N4.04 trillion, and peaking again in June at N4.29 trillion. Claims remained relatively stable through the remainder of the year, staying above N4 trillion from July to December. On a year-on-year basis, significant increases were recorded across most months, with February seeing a 12.96 percent rise and March an 11 percent increase compared to their 2023 counterparts. The most notable year-on-year increase occurred in June, with claims up by N1.01 trillion, or 30.65 percent, compared to June 2023.
By December 2024, total claims stood at N4.09 trillion, a slight year-on-year decline from N4.20 trillion in December 2023. The data also indicates that non-interest banks contributed marginally to subnational claims, maintaining a steady amount of N4.03 million until August before a slight drop to N3.77 million in December. The gradual rise in the CBN’s share suggests growing reliance on the apex bank by state governments, particularly in months when commercial banks appeared to tighten credit. Conversely, the retreat of commercial banks, which started the year with N2.73 trillion in claims and ended with N2.41 trillion, may reflect increased risk sensitivity or tighter regulatory conditions in the banking sector. This slight easing of debt levels came in the context of a year marked by soaring inflation and aggressive monetary tightening by the Central Bank.
Expert Concerns and Recommendations for Fiscal Sustainability
The persistent debt burden on Nigeria's subnational governments has drawn reactions from economic experts, who warn of potential challenges to fiscal stability. Teslim Shitta-Bey, Director and Chief Economist at Proshare Nigeria LLC, expressed concern that most state governments, alongside the Federal Government, have failed to effectively manage their balance sheets. "The challenge here is that most of the governments, including the Federal Government, are unable to manage their balance sheets properly. While borrowing might seem like an easy way to run operations, it is not necessarily the right approach," Shitta-Bey stated.
He advocated for governments to consider longer-term debt structures that resemble equity, suggesting they might be more beneficial in the long run. He also called for a comprehensive register of national assets to help states raise capital, citing the underuse of facilities like the National Stadium as an example. Shitta-Bey particularly lamented the underuse of state revenue bonds, stressing that "States need to focus on raising revenue bonds, instead of general obligation bonds."
Adewale Abimbola, a Lagos-based economist, attributed the persistent fiscal fragility of Nigerian states to their economic non-viability and overreliance on federal allocations. He noted that most states depend heavily on disbursements from the Federation Account Allocation Committee for survival. Abimbola urged state governments, especially the less vibrant ones, to conduct an introspective analysis to identify sectors where they possess competitive advantages.
"Once that is mapped out," he advised, "they need to communicate and amplify these opportunities to both the local private sector and foreign investors." He also stressed the importance of improving the ease of doing business, urging states to adopt supportive policies and avoid stifling regulations that often deter investment. Abimbola's pointed remark, "The thing is, state governors know what to do. They know what to do. But what’s lacking is the political will to pursue them," highlights a perceived governance gap. He expressed concern that this gap has worsened in 2025, with many political actors seemingly more focused on the 2027 elections than on addressing immediate governance and development priorities.
Macroeconomic analyst, Dayo Adenubi, further emphasized the critical need for states to take more targeted steps toward boosting internally generated revenue in the face of rising debt obligations and constrained federal transfers. Adenubi suggested raising consumption levels to increase Value Added Tax (VAT) collections and improving tax collection within state corridors, particularly by enforcing property taxes and transport-related levies.
He stressed that this must be coupled with governments delivering on their social contract to maintain citizen trust and compliance. Adenubi also highlighted the role of economic policy at the subnational level, stating that enhancing the ease of doing business within states could encourage corporate growth and job creation. This, he concluded, would lead to higher Pay-As-You-Earn (PAYE) tax remittances, helping to stabilize state revenues and reduce dependence on borrowing.