Reduction in Domestic Debt Among Oil-Producing States
Between June 2023 and March 2025, oil-producing states in Nigeria significantly reduced their domestic debt burden by approximately N610.84bn. This reduction was largely attributed to record inflows from the 13 per cent derivation fund, which has become a crucial source of revenue for these states.
The data, based on the most recent subnational domestic debt reports from the Debt Management Office, shows that the combined domestic debt of the nine oil-producing states decreased from N1.66tn in June 2023 to N1.05tn by March 2025. This decline represents a significant shift in the financial landscape of these states, as they managed to reduce their obligations despite ongoing fiscal challenges.
Delta State, one of the largest recipients of derivation funds, saw its domestic debt drop from N465.40bn to N204.72bn, marking a reduction of over 55 per cent. Akwa Ibom also made notable progress, reducing its debt from N199.58bn to N118.21bn, a decrease of more than 40 per cent. Bayelsa and Imo followed suit, with their debts falling from N134.50bn to N73.53bn and from N220.83bn to N122.09bn, respectively.
Ondo experienced the most dramatic proportional reduction, cutting its debt from N74.03bn to just N11.76bn. However, Rivers State stood out as the only oil-producing state that recorded an increase in domestic debt, with its obligations rising from N225.51bn to N364.39bn—a growth of over 60 per cent. This contrast highlights the varied fiscal strategies and outcomes among the states.
Impact of Debt Repayment on Revenue
The revenue picture for oil-producing states during this period reveals the heavy burden of debt repayment. Between the third quarter of 2023 and the first half of 2025, the nine oil states generated a combined N1.39tn in Internally Generated Revenue (IGR). When compared to the N610.84bn in domestic debt repayments recorded between June 2023 and March 2025, it becomes clear that nearly 44 per cent of their IGR was used to service existing debt.
This high proportion of revenue allocated to debt repayment underscores the challenge these states face in financing new projects and addressing critical infrastructure needs. The PUNCH noted that this percentage could be even higher once the Debt Management Office releases figures for the second quarter of 2025.
Rivers State reported the highest IGR at N507.23bn, followed by Delta with N250.36bn and Akwa Ibom with N134.81bn. However, some states, such as Bayelsa and Edo, had no figures published for Q3 2023, while Rivers and Anambra had yet to release their IGR reports for the first half of 2025. These data gaps suggest that the actual combined IGR of the oil-producing states may be higher than the currently available N1.39tn, potentially lowering the estimated share of revenue consumed by debt repayments.
Derivation Revenue and Fiscal Challenges
Over a two-year period from July 2023 to June 2025, oil-producing states received a total of N1.67tn in 13 per cent derivation allocations. This figure reflects a sharp rise in allocations, with the first half of 2025 alone accounting for more than 40 per cent of the entire sum.
The derivation principle ensures that 13 per cent of oil revenue earned in a state is set aside for that state. For decades, this mechanism has served as both a fiscal lifeline and a point of contention in resource control politics. The recent surge in allocations highlights the significant windfall for these states under President Bola Tinubu’s administration.
However, the question remains: how have these funds been utilised? While larger states like Delta, Bayelsa, Akwa Ibom, and Rivers have benefited disproportionately, smaller producers such as Abia, Imo, and Ondo have seen relatively modest gains. This imbalance raises concerns about equitable distribution and effective use of resources.
Criticism and Calls for Transparency
Despite the increased inflows, many oil-producing states continue to face severe infrastructure gaps, high poverty rates, and environmental degradation. Critics argue that the funds often fail to reach the communities they are intended to benefit, instead being diverted into recurrent expenditure or patronage networks.
In Edo State, for example, Publicity Secretary Chris Nehikhare highlighted the lack of visible improvements in infrastructure and social services, despite rising IGR and derivation funds. He pointed to delays in salary payments and persistent hardship as evidence of mismanagement.
Similarly, in Delta State, the lack of transparency in the use of derivation funds drew criticism from the Delta Obidient Elders Forum. They called for greater accountability and clearer reporting on how the funds are spent.
In Anambra State, Deputy Publicity Secretary Godwin Ezeh accused the government of failing to utilise derivation funds effectively, leaving oil communities like Ogwuaniocha in a state of neglect. He argued that the funds should provide tax relief rather than increasing the financial burden on residents.
Calls for Direct Payments to Communities
Sociopolitical activist Austin Ozobo urged the Federal Government to pay the 13 per cent derivation funds directly to oil-producing communities in the Niger Delta, rather than through state governments. He argued that direct payments would ensure better development and prevent the misappropriation of funds by local leaders.
Ozobo highlighted the long-standing issue of corruption in the management of derivation funds, which has undermined efforts to address the environmental and economic challenges caused by oil exploration. He called for urgent reforms to ensure that these funds are used for the benefit of the communities that have borne the brunt of oil production.
