35 States Spend N1.99trn On Debt Servicing As Pension, Contractor Arrears Mount

State governments across Nigeria spent a combined N1.99 trillion on debt servicing in 2025, while outstanding pension and gratuity obligations, as well as unpaid contractor bills, continued to place pressure on their finances, raising concerns about their capacity to meet other expenditure commitments.

According to BudgIT’s 2026 State of States report with the title, “From Allocation to Impact: Rethinking State Spending Priorities”, 35 states covered by the assessment recorded total debt servicing payments of N1.99 trillion in 2025, compared with N2.12 trillion in 2024.

The amount represents a decline of about N125.08 billion, or 5.91 per cent, year on year.

However, the aggregate expenditure masks significant increases in debt servicing by several states, with some recording more than a 200 per cent rise during the period.

Lagos accounted for the largest share of the 2025 debt servicing payments, spending N479.13 billion, representing about 24.1 per cent of the aggregate for the 35 states. The figure was an increase from N416.12 billion in 2024.

Oyo State followed with N182.96 billion, compared with N45.02 billion in the preceding year, representing a 306.38 per cent increase. Plateau spent N107.65 billion, up from N52.44 billion, while Benue recorded N104.57 billion and Osun N100.17 billion.

Other states with substantial debt servicing payments included Ogun, which spent N87.41 billion; Kaduna, N73.40 billion; Cross River, N69.77 billion; Bauchi, N59.59 billion; and Bayelsa, N59.50 billion.

The report also showed that debt servicing increased by 263.35 per cent in Osun, 260.57 per cent in Ebonyi, 240.03 per cent in Anambra and 216.50 per cent in Taraba. Ebonyi’s debt servicing rose from N11.79 billion in 2024 to N42.51 billion in 2025.

Beyond debt servicing, the report highlighted the burden of unpaid obligations to contractors, pensioners and retirees, which represent additional claims on state resources outside conventional debt figures.

It noted that such liabilities “represent claims on future public resources and can impose costs on retirees, workers and businesses even before they are formally settled.”

The report’s 2025 payables and liabilities table showed that Delta had the highest reported contractor obligations at N121.69 billion, followed by Ogun with N97.91 billion, Kaduna with N72.95 billion and Enugu with N64.97 billion.

Other significant contractor arrears included N43.94 billion in Lagos, N43.52 billion in Imo, N43.32 billion in Ebonyi and N20.23 billion in Benue.

The pension and gratuity figures also revealed substantial outstanding obligations. Kaduna recorded the highest reported amount at N100.29 billion, followed by Benue with N71.02 billion, Ogun with N69.95 billion and Edo with N51.37 billion.

Bauchi reported pension and gratuity arrears of N41.41 billion, while Niger recorded N41.75 billion. Enugu had N37.79 billion, Abia N37.51 billion and Plateau N35.19 billion.

The report further showed that Kwara had N23.87 billion in pension and gratuity arrears, while Adamawa recorded N24.05 billion. Other states include Bayelsa with N12.15 billion, Ondo with N13.46 billion, Kogi with N9.19 billion and Ekiti with N8.07 billion.

The pressure from these obligations is reflected in the share of revenue absorbed by debt servicing in some states.

Plateau’s debt servicing amounted to 35.28 per cent of its total revenue, while Ogun spent 17.11 per cent and Kaduna 16.03 per cent. Ebonyi’s debt service payments represented 15.99 per cent of its revenue.

Although the combined debt servicing expenditure of the 35 states declined in 2025, the increases recorded by several states, alongside substantial unpaid liabilities, highlight the need to assess state fiscal sustainability beyond reported debt stocks alone.

The report stressed the need for sustainable debt strategy to extend beyond statutory borrowing limits, saying “states need credible medium-term debt strategies, transparent reporting of guarantees and arrears, conservative exchange-rate risk management and a stronger connection between borrowing and productive capital formation.

“The key consideration should be whether debt-financed spending expands the future capacity of the state to provide services and generate revenue. Without that discipline, higher revenue inflows can coexist with growing fiscal vulnerabilities,” it said.

BudgIT, therefore, urged state governments and legislatures to treat debt transparency, project appraisal, arrears clearance and oversight of loan-funded programmes as central responsibilities of public financial management, rather than as peripheral compliance exercises.