Ten states are planning to source about N4.287tn from loans, bonds, grants, capital receipts, and public-private partnerships to finance capital projects in their 2026 budgets. Collectively, the states, including Lagos, Abia, Ogun, Enugu, Osun, Delta, Sokoto, Edo, Bayelsa, and Gombe, presented budgets totalling N14.174tn to lawmakers.
An analysis of these budgets by The PUNCH shows that these states are increasingly turning to non-recurring financing beyond statutory federal transfers, including allocations from the Federation Accounts Allocation Committee, value-added tax receipts, and internally generated revenue, to support ambitious infrastructure and development projects.
Economists say Nigeria’s growing reliance on borrowing is not mainly because the country lacks revenue but because public funds are poorly managed. They argue that budgets, which should strictly guide government spending, are often ignored, while weak oversight and revenue leakages force governments to rely on loans. Although borrowing can help fund development when used carefully, frequent and unchecked borrowing risks creating long-term debt problems and passing today’s failures onto future generations.
In Lagos State, the commercial hub with the nation’s largest subnational budget, Governor Babajide Sanwo-Olu proposed a N4.237tn budget for 2026. Of this, N3.12tn will come from IGR and federal transfers, leaving N1.117tn (26.4 per cent) to be raised through loans and bonds to finance capital projects. Even for a state with IGR comparable to some smaller African countries, borrowing remains a key mechanism to fund ambitious infrastructure and development initiatives.
Former Vice-Chancellor of Crescent University, Prof Sheriffdeen Tella, told The PUNCH that states should live within their means and focus on improving internally generated revenue.
“States were not originally meant to borrow because they are largely dependent on allocations from the federal government,” he said, adding that weak fiscal discipline at the centre has encouraged similar behaviour at the subnational level.
According to him, the Federal Government’s own heavy borrowing has weakened its ability to restrain states, resulting in a system where all tiers of government accumulate debt, creating long-term problems for future generations.
Abia State’s N1.016tn budget illustrates the challenges facing smaller, less commercially driven states. Under Governor Alex Otti, who is spearheading a revival of years of neglected infrastructure, the state expects to generate N607.2bn from FAAC allocations, value-added tax, grants, and other federal revenue channels. This leaves a funding gap of N409bn, or 40.3 per cent, which the government plans to cover through borrowing and other non-recurring sources.
Abia made verifiable progress in 2025, emerging as one of the leading states for domestic debt reduction. As of March 31, 2025, Abia’s domestic debt stood at N48.67bn, marking a 57.2 per cent decline from the previous year. By Q2 2025, the figure was reported at N48.6bn, the Debt Management Office recorded.
Governor Dapo Abiodun’s Ogun State N1.669tn “Budget of Sustainable Legacy” anticipates N509.88bn from internally generated revenue and N554.81bn from federal transfers, but loans and grants of N518.9bn (31.1 per cent) will be required to fund its capital projects.
In the first half of 2025, total state external debt in Nigeria rose slightly to $4.812bn, with Ogun State accounting for $21.8m of the increase.
Prof Tella warned that the persistent turn to borrowing reflects poor revenue management rather than a lack of income, insisting that Nigeria’s core fiscal challenge is revenue leakage and misappropriation.
“As far as I am concerned, revenue is not Nigeria’s problem. The problem is the stealing of the revenue,” he said, noting that public funds that should strengthen government finances are often lost, making borrowing appear inevitable.
Enugu State plans a N1.62tn budget for 2026, a 66.5 per cent increase over 2025. While N870bn from IGR and N387bn from federal allocations will cover recurrent expenditure and some developmental spending, N329bn (20.3 per cent) will come from loans and capital receipts.
The DMO reported that in Q2 2025, Enugu State had the highest domestic debt in the South-East, with a stock of N180.5bn, more than 10 times that of Ebonyi, the region’s least indebted state, which stood at N15.8bn.
“Budgeting in Nigeria does not make any sense to some of us. It no longer makes sense at all,” Assistant General Secretary of the Nigeria Labour Congress, Chris Onyeka, told our correspondent. “When budget performance is at 30 per cent, what is the point? When budgets are violated and not implemented, extra-budgetary expenses become the order of the day.”
He questioned the effectiveness of Nigeria’s budgeting process, arguing that budgets have lost their force as binding legal instruments due to weak enforcement.
Onyeka said a budget is meant to serve as a guide that outlines government revenue expectations and spending plans for the coming year, noting that once approved by the legislature, it becomes law and should be strictly followed by the executive. “If you go outside the law, it means you have broken the law, and when laws are broken, there should be consequences,” he said.
Further, Osun State’s N723.45bn budget relies on N421.25bn in recurrent revenue, with N286.01bn (39.5 per cent) from capital receipts to fund its projects. The state significantly reduced its debt profile in 2025 under Governor Ademola Adeleke. External debt fell from $91.78m to $75.14m, a decline of 18.13 per cent, while domestic debt dropped from N148.37bn in 2022 to N83.32bn in 2025, a reduction of N65bn, or 43.84 per cent.
In Delta State, expected growth in internally generated revenue, projected at N250bn, combined with N720bn in federal transfers, still leaves N694bn (41.7 per cent) from loans and grants to fund capital expenditure in its N1.664tn budget. Sokoto State’s N758.7bn “Budget of Socio-Economic Expansion” will see N233.8bn (30.8 per cent) sourced from grants, aid, and capital development funds, while Edo State will cover N299bn (31.8 per cent) of its N939.85bn budget through loans, grants, and public-private partnerships.
The NLC executive said breaches of budgetary provisions often go unpunished, creating a system where accountability is selective. He said laws are typically enforced only when they affect ordinary citizens and workers, while government officials face little or no consequences for violations.
According to him, this lack of accountability undermines public confidence in the budget process and weakens fiscal discipline. On the issue of borrowing, Onyeka said debt itself was not a crime, stressing that borrowing could be justified if it is properly utilised to stimulate economic activity and support growth.
Bayelsa State, another oil-dependent economy, plans N74.9bn (7.4 per cent) of its N1.01tn budget from loans and grants, while Gombe State’s N535.7bn “Budget of Consolidation” is the most dependent, with N325.5bn (60.8 per cent) expected from loans and capital receipts.
Under Governor Sheriff Oborevwori, Delta State reduced its domestic debt in 2025 through repayments rather than new borrowings. Domestic debt stood at N204.67bn as of June 30, 2025, down slightly from N204.72bn in March, with a Q2 reduction of N93.92bn noted in analyses. Although the state remains among the more heavily indebted, the decline reflects a measure of fiscal caution amid national trends.
Bayelsa State maintained one of the lowest domestic debt profiles among Nigerian states as of mid-2025 under Governor Douye Diri. Domestic debt fell to N65.99bn by June 30, 2025, down from N73.53bn in March, reflecting a N7.54bn reduction in Q2. The state remains the least indebted in the South-South region.
Tella also criticised the handling of savings from reforms such as fuel subsidy removal and naira devaluation, alleging that the gains are shared among different tiers of government without clear evidence of impact at the state level.
He said the absence of public accountability and sustained pressure on government officials has allowed the situation to persist, undermining fiscal sustainability and public trust.
Last week, fiscal expert Aliyu Ilias told our correspondent that states with low IGR are particularly vulnerable. He warned that over one-third of budgets in several states depend on non-recurring funds, which could undermine fiscal sustainability if borrowing and external funding do not materialise on time.
Managing Director of Optimus by Afrinvest, Dr Ayodeji Ebo, said, “Relying heavily on loans and grants for capital projects exposes states to funding delays and increases debt servicing obligations. For long-term sustainability, states must focus on building durable local revenue sources rather than depending excessively on external inflows.”
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