Oil-producing states in Nigeria have reduced their domestic debts by about N610.84 billion between June 2023 and March 2025, largely due to record inflows from the 13 per cent derivation fund. Fresh figures released by the Debt Management Office (DMO) show that the combined domestic debts of the nine oil-producing states dropped from N1.66 trillion in June 2023 to N1.05 trillion by March 2025. This also meant that their share of subnational debt in Nigeria fell from 28.6 per cent to 27.2 per cent within the same period.
Delta State recorded the sharpest fall in absolute terms, as its debt was cut by more than half from N465.4 billion in June 2023 to N204.7 billion by March 2025. Akwa Ibom also slashed its debt from N199.6 billion to N118.2 billion. Bayelsa reduced from N134.5 billion to N73.5 billion, while Imo dropped from N220.8 billion to N122.1 billion. Ondo State saw the steepest proportional decline, bringing its debt down from N74 billion to just N11.8 billion.
However, Rivers State went in the opposite direction. Its domestic debt rose more than 60 per cent, climbing from N225.5 billion to N364.4 billion in less than two years. This was despite Rivers receiving some of the highest payments from the derivation fund, showing a different fiscal approach compared to its peers.
The DMO report also highlighted the performance of internally generated revenue (IGR) across the oil states. Between the third quarter of 2023 and the first half of 2025, the nine states collectively generated N1.39 trillion in IGR. But nearly 44 per cent of this amount was used to service and repay loans, reducing the amount left for capital projects and social services.
Rivers State reported the highest IGR of N507.2 billion during the period, underlining its strong revenue base. Delta followed with N250.4 billion, while Akwa Ibom reported N134.8 billion. The other states earned much less, showing the heavy dependence of smaller oil producers on federal allocations rather than locally generated income.
On the side of derivation fund allocations, fresh data from the National Bureau of Statistics (NBS) revealed that the oil-producing states received a total of N1.67 trillion in 13 per cent derivation funds between July 2023 and June 2025. More than 40 per cent of this allocation came in the first half of 2025 alone, when the states shared N688 billion. This was nearly double the derivation payment of the previous half year.
Delta State emerged as the biggest beneficiary of derivation inflows, receiving N520.3 billion over the two-year period. Bayelsa followed with N332.1 billion, Akwa Ibom got N330.3 billion, while Rivers received N309.8 billion. These four states alone accounted for about 90 per cent of the total derivation fund, leaving the other five oil producers with only N140 billion combined.
Analysts believe the sharp debt reductions across most of the states reflect the impact of increased derivation payments, which allowed them to meet loan obligations without further borrowing. For states like Ondo, Imo, and Bayelsa, the derivation fund played a crucial role in stabilising public finance and reducing pressure from domestic creditors.
But concerns remain over the use of these funds. Some stakeholders argue that despite receiving huge allocations, the oil-producing states have not shown enough improvements in infrastructure and human development indicators. They point out that debt repayment is important, but citizens are also expecting visible projects that can stimulate the local economy.
The contrasting position of Rivers State also raises questions. While other states prioritised debt reduction, Rivers saw its debt grow by more than N138 billion in less than two years. Observers suggest this could be due to increased borrowing for capital projects, or a reliance on loans to fund recurrent expenditure despite healthy derivation inflows.
Overall, the combination of stronger derivation receipts and disciplined debt management has helped most oil-producing states clean up their balance sheets. The development could ease pressure on their budgets and create room for new investments. However, experts caution that unless states also grow their internally generated revenue and diversify their economies beyond oil, the debt challenge could resurface if oil prices fall or federal allocations shrink in the future.
