States Drown In ₦1.06 Trillion Debts Despite Record 2024 Revenue

By MELVIN KOFFA

NIGERIA’S subnational governments are once again facing a crisis of credibility: despite receiving the highest revenue inflows in their history, states collectively owe contractors and retirees a staggering ₦1.06 trillion. BudgIT’s 2025 State of States report paints a troubling picture of fiscal indiscipline, misplaced priorities, and deepening structural weaknesses across the federation.

The arrears—₦434.87 billion owed to contractors and ₦626.81 billion in unpaid pensions and gratuities—span 30 states. Only Borno, Kano, and Nasarawa stand out for having no arrears, while others, led by Kaduna, Ogun, Benue, and Edo, have allowed legacy debts to snowball despite unprecedented FAAC allocations.

This contradiction is at the heart of Nigeria’s subnational fiscal crisis: revenues are rising, but obligations are rising even faster, largely because spending remains anchored on political convenience rather than long-term sustainability.

A Map of Fiscal Distress

Kaduna State tops the list with ₦139.36 billion owed—twice its IGR. Benue follows, owing nearly five years’ worth of its internal revenue. Adamawa and Taraba exhibit similar warning signs: pension obligations alone exceed what the states can generate on their own. These are not just numbers but a reflection of years of deferred responsibility and the cost of postponing difficult reform decisions.

In total, the 35 states analysed (Rivers exempted due to missing audited records and political instability) owe ₦1.24 trillion in various categories, including salaries, judgment debts, and other liabilities.

For retirees—many of whom depend solely on monthly benefits—the arrears are more than an accounting statistic; they represent delayed livelihoods, healthcare crises, and a breach of long-standing social contracts.

Revenue Windfall, Reform Shortfall

2024 FAAC inflows surged to ₦11.38 trillion, more than double the previous year’s. With subsidy removal and exchange-rate reforms boosting receipts, states were expected to clear legacy arrears and invest in capital development. Instead, BudgIT notes a familiar pattern: recurrent expenditure continues to swallow revenue, leaving contractor debts and pension backlogs untouched.

The overspending on overheads, political appointments, and short-term recurrent bills exposes a governance inertia that undermines any opportunity for structural reset.

Pension Crisis Rooted in Non-Compliance

Only 17 of 36 states are currently implementing the Contributory Pension Scheme (CPS), 20 years after it was introduced to prevent precisely this kind of pension overhang. Twelve states have not begun implementation at all. Seven are still struggling to set up pension bureaus. The predictable result: ballooning gratuity arrears and increasing pressure on already weak state finances.

The Nigerian Union of Pensioners rightly points out that states are “foot-dragging,” an assessment substantiated by the data. Pension debt is rising not because states lack funds, but because they lack the political will to properly implement reforms that prioritise retirees’ welfare.

Contractor Debts Mirror Federal Tendencies

The problem extends beyond states. Only weeks ago, aggrieved local contractors blockaded the National Assembly, protesting ₦3 trillion allegedly owed by the Federal Government. Their frustration mirrors a broader national trend: governments commissioning projects, celebrating them, then refusing to pay those who delivered them.

This culture of indebtedness corrodes trust, distorts the cost of public works, and ultimately discourages investment in public infrastructure.

A Looming Crisis of Confidence

The core issue is not that states lack money—2024 proved they can earn more than ever. The real crisis lies in how states spend, what they choose to prioritise, and what they are willing to ignore.

When retirees wait years for pensions, when contractors absorb losses for completed projects, when states owe more than they generate, and when revenue windfalls do not translate into cleared obligations, the message to citizens is unmistakable: governance is drifting, not improving.

BudgIT warns that the fiscal time bomb could worsen if left unaddressed. Without urgent reforms—strict debt repayment frameworks, reduced recurrent expenditure, and full adoption of the CPS—states risk undermining public confidence at a scale that could outlast their current political cycles.

Nigeria’s windfall year should have been a moment of fiscal reset. Instead, it is becoming a cautionary tale of opportunity squandered.