States, Local Governments Cut Bank Debt by N547.5bn

State governments and local government councils across Nigeria have significantly reduced their exposure to bank loans, paying down about N547.52bn within a one-year period, buoyed by rising inflows from the Federation Account.

Data from the Central Bank of Nigeria’s latest Quarterly Statistical Bulletin show that banks’ claims on states and local councils declined from N2.68tn to N2.13tn, reflecting a 20.4 per cent reduction year-on-year.

Earlier figures indicate that banks’ exposure stood at N2.73tn at the beginning of the period under review before dropping steadily. While there were brief upticks in some months, a sharp adjustment occurred towards the end of the second quarter, when outstanding loans fell by more than N300bn in a single month.

Analysts link the aggressive debt repayment to the prolonged high-interest-rate environment, which made borrowing increasingly expensive for sub-national governments. Monetary tightening by the Central Bank, which pushed benchmark rates to historic highs, encouraged states and councils to prioritise debt reduction.

At the same time, statutory revenue allocations rose sharply. Records from the Office of the Accountant-General of the Federation show that combined allocations to states and local governments climbed from N8.96tn to N12.67tn, excluding derivation funds. When derivation is included, total receipts rose to N14.28tn, representing a substantial revenue windfall.

State governments recorded the largest increase in absolute terms, with allocations rising by over N2tn, while local councils also posted gains of more than N1.5tn. Monthly disbursements in the later period consistently exceeded levels recorded previously, reflecting stronger revenue performance.

Despite the improved inflows, fiscal watchdogs have warned that debt pressures remain uneven across states. Reports indicate that some states with high debt obligations continue to rank low in revenue receipts, raising sustainability concerns.

The Director-General of the Debt Management Office has advised states to reduce reliance on borrowing and instead expand internally generated revenue, while also embracing public-private partnerships to fund infrastructure and stimulate economic growth.