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"A Heavy Lift": Lagos Tops Nigeria's Debt Chart With N1.04 Trillion as Subnational Borrowing Hits N4.36 Trillion
Lagos State has once again cemented its position as Nigeria's economic powerhouse—but this time, the spotlight is on the mounting weight of its fiscal obligations. Fresh data released by the Debt Management Office (DMO) on April 20, 2026, reveals that Lagos State has emerged as Nigeria's most indebted subnational government, with a staggering debt profile of N1.04 trillion. The figures show that Nigeria's combined debt stock for the 36 states and the Federal Capital Territory (FCT) rose to N4.36 trillion in 2025, up from N3.97 trillion in 2024—a 9.89 per cent year-on-year increase that underscores the growing fiscal pressure on state governments nationwide.
For a state that generates the lion's share of Nigeria's internally generated revenue and serves as the nation's commercial nerve centre, the N1.04 trillion debt figure is both a testament to its borrowing capacity and a sobering reminder of the fiscal tightrope it walks. Lagos alone accounts for a staggering 27.97 per cent of the entire subnational debt stock—more than a quarter of all liabilities owed by Nigeria's 36 states and the FCT combined. This concentration of debt in a single state raises fundamental questions about fiscal sustainability, the true cost of megacity infrastructure, and whether Lagos is borrowing to build or borrowing to stay afloat.
The Numbers: A Deep Dive Into the DMO Data
The latest DMO figures paint a vivid picture of Nigeria's subnational debt landscape. Total domestic debt across the 36 states and the FCT climbed from N3.97 trillion in 2024 to N4.36 trillion in 2025, an absolute increase of N392.41 billion. This rise reflects a broader trend of states increasingly relying on borrowing to finance infrastructure projects, plug budget deficits, and navigate a challenging macroeconomic environment characterised by inflationary pressures and exchange rate volatility.
The data reveals a significant concentration of debt among Nigeria's largest and most economically dominant states. The top 10 most indebted states alone account for N2.96 trillion, representing a striking 67.98 per cent of the total subnational debt stock. A further breakdown shows that just five entities—Lagos, Rivers, Delta, Ogun, and the FCT—collectively owe approximately N2.26 trillion, which is more than half of the total debt burden carried by all subnational governments.
Lagos stands far ahead of every other state, making up over a quarter of the total debt. Rivers State follows at a distant second with N381 billion, while Delta State records N247 billion. Enugu State ranks fourth with N194.7 billion, and Ogun State rounds out the top five with N168 billion. On the external debt front, Lagos also leads with $1.049 billion in foreign obligations, followed by Kaduna ($658 million), Edo ($337 million), Ogun ($214 million), and Cross River ($201 million).
Benue's Anomaly: The Only State Swimming Against the Tide
Amid the broad upward trend in subnational borrowing, one state stands out as a notable exception. Benue State was the only state among the top 10 most indebted to record a reduction in its debt stock. The state's obligations fell by 12.52 per cent, dropping from N122.58 billion in 2024 to N107.23 billion in 2025.
This decline points to deliberate fiscal tightening—whether through aggressive debt servicing, limited new borrowing, or the successful restructuring of existing liabilities. However, analysts caution that such fiscal consolidation often presents a classic economic trade-off. Aggressive tightening frequently comes at the cost of reduced capital expenditure, which could potentially slow the infrastructure development necessary for long-term growth. As one analyst noted, while the decline signals improving fiscal discipline, it "may also reflect constrained capital spending, raising concerns about the potential trade-off between debt reduction and infrastructure development."
The Paradox: Record FAAC Allocations, Yet States Keep Borrowing
Perhaps the most troubling aspect of the rising subnational debt profile is that it is occurring despite a dramatic surge in federal allocations. Data shows that FAAC disbursements to states have jumped by an astonishing 161 per cent over the past three years—from N2.80 trillion in 2022 to N7.315 trillion in 2025.
This paradox of rising revenues alongside rising debt has sparked urgent questions about fiscal discipline at the state level. Ishaq Ibrahim, an Abuja-based economist, observed that despite the significant increase in statutory allocations, states have been "unable or unwilling to fund their ambitions solely through their increased share of the Federation Account." He noted that the N200 billion expansion in debt between March and September 2025 suggests that the "easy gains" of fiscal reform may have been exhausted. "While the initial drop to N3.8 trillion was hailed as a sign of improved fiscal health, the current uptick points to a growing mismatch between record revenues and escalating state expenditures," Ibrahim said.
Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), offered a more measured perspective. He emphasised that "it is important to ensure that the debt is used strictly to fund capital projects, especially infrastructure projects, that would strengthen the productive capacity of the economy."
Lagos' Defence: Borrowing to Build a Megacity
Lagos State officials have consistently defended the state's borrowing as strategic and necessary. The state's 2026 budget, tagged the "Budget of Shared Prosperity," stands at a colossal N4.237 trillion, with debt commitments taking over N700 billion. Governor Babajide Sanwo-Olu has earmarked N243.3 billion for deficit financing, N143.8 billion for debt servicing, and N383.4 billion for debt repayments in 2026.
The state's borrowing is largely channelled into critical infrastructure to support the demands of a megacity that houses over 20 million people and serves as Nigeria's commercial capital. Lagos has a long and storied history in the capital markets, dating back to its foundational N30 million revenue bond in 1987 to fund the Lekki Peninsula Scheme. In November 2025, the state set a new benchmark by raising a record N244.82 billion through two oversubscribed bond issues, including the nation's first-ever subnational green bond.
Credit rating agency Agusto & Co. recently assigned an indicative "Aa" rating to Lagos State's proposed N200 billion bond issuance, citing the state's "very good financial condition, supported by its sustainable cash-generating capacity, balanced expenditure profile and robust ability to meet local currency obligations." Notably, Lagos' internally generated revenue (IGR) averages an impressive 70 per cent of its total revenue—a figure unmatched by any other Nigerian state.
The Risks: Debt Sustainability and Exchange Rate Exposure
Despite the strong investor confidence, Lagos' mounting debt profile is not without significant risks. Agusto & Co. tempered its positive rating by noting the state's "growing public debt, particularly unhedged foreign currency exposures that heighten vulnerability to exchange rate depreciation." With the naira experiencing persistent volatility against the dollar, Lagos' $1.049 billion external debt portfolio represents a considerable exposure.
Moreover, critics have long argued that Lagos' borrowing, while financing visible infrastructure projects, has not always translated into improved living conditions for the majority of its residents. During the 2023 gubernatorial election campaign, then-candidate Gbadebo Rhodes-Vivour highlighted the alarming increase in Lagos State's domestic debt, which rose by 269 per cent from December 2015 to December 2022. He emphasised that Lagos ranked 25th out of 36 states in terms of debt sustainability at the time.
Economic expert Uzor Joseph, Executive Director at Frontline Investments, warned that the upward debt trajectory underscores an urgent mandate for states to aggressively expand their IGR bases. He explained that long-term solvency hinges on a state's ability to mobilise revenues internally by effectively leveraging natural resource endowments, technology, public-private partnerships, and human capital.
A Tale of Two Nigerias: The Widening Fiscal Divide
The DMO data underscores a stark and growing fiscal divide among Nigerian states. While a handful of economically dominant states continue to drive borrowing, over 25 states collectively account for only about one-third of domestic debt, indicating more limited participation in credit markets. This concentration of borrowing capacity within a narrow segment of the federation highlights the structural imbalances that characterise Nigeria's fiscal federalism.
The pattern is consistent across both domestic and external borrowing. Lagos, Rivers, and a small group of states account for over half of domestic debt and about 40 per cent of external debt. While these industrialised states have higher borrowing capacities, they also face the highest exposure to debt-servicing risks that could eventually crowd out essential social spending. The structural reality is that a few states drive both the country's economic activity and its debt accumulation.
Conclusion: Walking the Tightrope Between Ambition and Prudence
Lagos State's N1.04 trillion debt profile is neither an unmitigated disaster nor an unqualified success. It is, rather, a reflection of the immense pressures and ambitions that come with governing Nigeria's most populous and economically vital subnational entity. The state's ability to access capital markets and attract investor confidence is a testament to its fiscal credibility and the strategic importance of its economy.
However, the sheer scale of the debt—representing over a quarter of all subnational borrowing in Nigeria—demands rigorous oversight and a clear-eyed assessment of long-term sustainability. As the 2026 fiscal year progresses, the ability of Lagos and other heavily indebted states to service their rising obligations without compromising public services will remain a critical metric for Nigeria's overall sovereign credit health. The path forward requires a delicate balance: borrowing to build the infrastructure of tomorrow while ensuring that today's debt does not become tomorrow's fiscal crisis.
Without a significant shift toward stronger internal revenue mobilisation and disciplined borrowing frameworks, Nigerian states—Lagos included—risk heightened debt vulnerabilities in the years ahead. The question is not whether Lagos should borrow, but whether it is borrowing wisely, spending efficiently, and building an economy that can comfortably carry the weight of its ambitions.
Stay tuned to Unuevbo TV for more in-depth reporting on Nigeria's fiscal policy and subnational debt landscape.
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