Ten states are planning to raise about N4.287tn through loans, bonds, grants, capital receipts and public-private partnerships to finance capital projects in their proposed 2026 budgets.
The states—Lagos, Abia, Ogun, Enugu, Osun, Delta, Sokoto, Edo, Bayelsa and Gombe—have collectively presented budgets totalling N14.174tn to their respective state assemblies.
An analysis of the budget proposals by The Press shows that the states are increasingly relying on non-recurring financing sources beyond statutory revenues such as Federation Accounts Allocation Committee (FAAC) disbursements, value-added tax receipts and internally generated revenue (IGR). The trend reflects growing dependence on borrowing to fund large-scale infrastructure and development programmes.
Economists warn that Nigeria’s rising debt profile is driven less by insufficient revenue and more by weak fiscal discipline, poor budget implementation and revenue leakages. While borrowing can support development if prudently managed, they caution that excessive and unchecked borrowing could create long-term debt burdens and transfer today’s fiscal challenges to future generations.
Lagos State, which has the largest subnational budget, proposed a N4.237tn budget for 2026 under Governor Babajide Sanwo-Olu. Of this amount, N3.12tn is expected from IGR and federal transfers, leaving N1.117tn—about 26.4 per cent—to be raised through loans and bonds to finance capital projects.
Former Vice-Chancellor of Crescent University, Prof Sheriffdeen Tella, said states should focus on living within their means and strengthening IGR. He argued that weak fiscal discipline at the federal level has filtered down to states, encouraging widespread borrowing across all tiers of government.
Abia State’s proposed N1.016tn budget highlights the challenges facing smaller, less commercially driven states. The government expects N607.2bn from federal allocations, VAT and grants, leaving a N409bn funding gap—about 40.3 per cent—to be covered through borrowing and other non-recurring sources.
Despite this, Abia recorded notable progress in debt reduction in 2025. According to the Debt Management Office (DMO), the state’s domestic debt fell by 57.2 per cent to N48.67bn as of March 31, 2025.
Ogun State’s N1.669tn “Budget of Sustainable Legacy” projects N509.88bn from IGR and N554.81bn from federal transfers, but will still require N518.9bn, or 31.1 per cent, from loans and grants to fund capital projects. The DMO reported that total state external debt rose slightly to $4.812bn in the first half of 2025, with Ogun accounting for $21.8m of the increase.
Enugu State plans a N1.62tn budget for 2026, representing a 66.5 per cent increase over 2025. While N1.257tn from IGR and federal allocations will fund recurrent spending and part of development costs, N329bn—about 20.3 per cent—will come from loans and capital receipts. Enugu currently has the highest domestic debt in the South-East at N180.5bn, according to the DMO.
Assistant General Secretary of the Nigeria Labour Congress, Chris Onyeka, criticised what he described as weak budget implementation and enforcement in Nigeria. He argued that budgets have lost their force as binding legal instruments, with frequent violations and extra-budgetary spending going unpunished.
Osun State’s proposed N723.45bn budget depends on N286.01bn, or 39.5 per cent, from capital receipts. The state, however, significantly reduced its debt profile in 2025, with external debt falling by 18.1 per cent and domestic debt declining by 43.8 per cent under Governor Ademola Adeleke.
In Delta State, projected IGR of N250bn and federal transfers of N720bn still leave N694bn—41.7 per cent of its N1.664tn budget—to be funded through loans and grants. Sokoto State’s N758.7bn “Budget of Socio-Economic Expansion” will rely on N233.8bn, or 30.8 per cent, from grants and capital development funds, while Edo State plans to fund N299bn—31.8 per cent—of its N939.85bn budget through loans, grants and PPPs.
Bayelsa State plans to source N74.9bn, or 7.4 per cent, of its N1.01tn budget from loans and grants, maintaining one of the lowest debt profiles in the country. Gombe State, however, is the most dependent, with N325.5bn—60.8 per cent—of its N535.7bn budget expected from loans and capital receipts.
Fiscal experts have warned that states with low IGR are particularly vulnerable, as over one-third of some state budgets depend on non-recurring funds. They caution that delays in borrowing or external financing could undermine fiscal sustainability.
Managing Director of Optimus by Afrinvest, Dr Ayodeji Ebo, said heavy reliance on loans and grants exposes states to funding risks and rising debt service obligations, urging them to prioritise sustainable local revenue generation to ensure long-term fiscal stability.
