The Nigeria Extractive Industries Transparency Initiative has sounded a policy-backed warning over what it calls a “silent fiscal emergency” eroding the economic stability of states across the country.

In a statement issued on Sunday in Abuja, NEITI’s Director of Communication and Stakeholder Management, Obiageli Onuorah, cautioned that mounting debt servicing burdens are severely limiting states’ ability to deliver essential services, fund local infrastructure, and implement poverty reduction programmes.

The warning comes on the heels of NEITI’s latest Policy Brief, titled “Beyond Federal Allocations: The Cost of Borrowings and Debt Servicing at the State Level in Nigeria,” released in Abuja.

The statement read, “Fresh and evidence-based insights by NEITI have revealed how debt servicing obligations are constraining states’ capacity to fund essential services, local infrastructure, and poverty reduction initiatives.”

NEITI noted that the research aligns with its statutory mandate under the NEITI Act 2007 and the global EITI Standards, which require transparent disclosures on revenue allocations and subnational transfers.

It pointed out that while Nigerian states receive substantial monthly allocations from the Federation Account—much of it from extractive revenues—between 10% and 30% of these funds are often deducted at source for debt servicing.

Such deductions, the agency warned, drastically shrink the fiscal space available for grassroots infrastructure, social services, and poverty alleviation.

By exposing the scale and impact of these deductions, NEITI aims to equip citizens, policymakers, and development partners with credible evidence to promote fiscal discipline and responsible debt management.

The organisation added that the study fills a critical governance gap by complementing national debt management reforms with stronger subnational fiscal transparency.

It warned that high and unsustainable debt servicing obligations threaten state-level stability and erode the developmental benefits of extractive revenues.

Through this disclosure, NEITI seeks to equip citizens, civil society, and the media with the tools to hold state governments accountable for their borrowing practices. It also provides a credible, evidence-based platform for dialogue on debt sustainability thresholds, transparent loan agreements, and sound economic governance.

The Policy Brief shows that in many states, between 10% and 30% of monthly FAAC allocations are deducted at source for debt servicing, significantly reducing resources for grassroots development. Kaduna State topped the 2024 list with a deduction ratio of 32.06%, amounting to ₦51.2 billion withheld from its ₦159.7 billion gross allocation.

Ogun State followed with 27 per cent (N33bn from N123bn), Bauchi with 26 per cent (N37bn from N142bn), and Cross River with 24 per cent (N28bn from N119bn). From the NEITI Policy Brief, these high-debt states contrast sharply with low-debt performers such as Borno with only 2.63 per cent debt reduction obligations, Jigawa 2.74 per cent, Benue -3.58 per cent, and Nasarawa -3.82 per cent, debt burden exposure.

Other States with low debt burden commitments include Kebbi, 4.06 per cent, Bayelsa, -4.46 per cent, and Anambra, 4.54 per cent, where prudent borrowing and efficient fiscal management have preserved over 95 per cent of gross allocations for direct development spending.

The NEITI Policy Brief also highlighted positive debt-to-GDP management practices and the lessons subnational governments can draw from them. According to NEITI, low-debt states offer practical examples of how to maintain a healthy debt-to-GDP profile while still using borrowing strategically for development when needed.

It stressed that striking the right balance between debt and revenue is essential to safeguarding fiscal sovereignty and avoiding reliance on future bailouts. The document further flagged significant contractual obligations—such as ₦6 billion in Ogun State and ₦7.73 billion in Ondo State—linked to public-private partnerships and infrastructure projects. NEITI warned that opaque contract terms and excessive deductions from allocations could erode future fiscal space.

On the other hand, 18 states—including Abia, Adamawa, and Akwa Ibom—reported no contractual deductions, indicating more cautious or strategically timed borrowing. NEITI also noted sharp disparities in 2024 allocations, with Delta State receiving ₦581.27 billion—over five times the ₦108.32 billion allocated to Nasarawa. It warned that such gaps, when combined with high debt-servicing ratios in states with smaller allocations, risk deepening fiscal inequality and hindering regional development.