Borrowings by states and local governments from commercial banks fell to ₦2.13 trillion in June 2025, down from ₦2.68 trillion a year earlier.
This represents a reduction of about ₦547.5 billion, or 20.4 per cent, in the review period.
In a report on Monday, the CSL research firm said the trend reflects a deliberate effort by subnational governments to repay costly bank loans.
It cited recent data from the Central Bank of Nigeria (CBN) to have revealed it.
It noted that the loans were driven persistently by a high-interest rate environment in 2024, but are now being repaid largely because of the improved revenue flows the subnationals are getting.
READ ALSO: Dangote Cement Triples Gboko Scholarship Fund, Awards Over ₦28m
“The decline was gradual through much of 2024 and early 2025, but saw a pronounced contraction by mid-year, suggesting that states leveraged stronger inflows from the Federation Accounts Allocation Committee (FAAC) to unwind debt obligations.
“Subnational finances have been buoyed recently by increased FAAC transfers,” CSL stated.
According to NEITI’s quarterly reviews and government releases, FAAC disbursements reached ₦15.26 trillion in 2024, a 43 per cent increase from the year before.
This was driven by fiscal reforms, the removal of fuel subsidies, and adjustments to the foreign exchange regime that boosted oil revenue remittances.
The research firm noted that within this total, state governments received ₦5.81 trillion, while local councils garnered ₦3.77 trillion, underscoring a substantial uplift in subnational revenue.
READ ALSO: Dangote Cement Triples Gboko Scholarship Fund, Awards Over ₦28m
The FAAC allocations have continued strongly into 2025.
In June 2025 alone, ₦1.818 trillion was shared among the three tiers of government, with states receiving over ₦600 billion.
“This sustained revenue uptick provided essential fiscal space for states to service maturing obligations and improve liquidity. That said, the fiscal landscape remains nuanced,” the firm maintained.
Notably, a significant share of the increase in FAAC allocations in recent times has been driven by higher global oil prices and the boost to Naira-denominated oil revenues following the devaluation of the Naira.
“These factors are inherently volatile and may not be sustained if commodity prices soften or exchange-rate pressures re-emerge.
“As a result, states with rigid expenditure structures and elevated wage bills remain particularly exposed to revenue shocks,” it warned.
The firm believes that against this backdrop, the recent reduction in subnational borrowing should be viewed as a positive but conditional development.
It also pointed out that the reduction reflects the prudent use of temporary revenue windfalls rather than a fundamental strengthening of fiscal capacity at the state and local government level.
There is a risk that short-term, monetised revenue gains may obscure deeper structural weaknesses, notably persistent dependence on volatile oil-related transfers and the slow growth of internally generated revenue (IGR).
“Strengthening fiscal discipline, expanding IGR, and diversifying revenue sources at the subnational level will be critical to achieving durable fiscal sustainability and improving the long-term credit profiles of states and local governments,” CSL research urged.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X
