Nigeria’s state governments are carrying substantial unpaid obligations to contractors, exposing businesses to liquidity pressures and prompting questions about whether increased public revenues are translating into sustainable economic activity.
Contractor arrears across 35 states amounted to approximately N754.4bn in 2025, based on figures in BudgIT’s State of States Report 2026. The liabilities represent a significant burden on companies delivering public infrastructure and services, many of which rely on borrowed funds to execute contracts while waiting for government payments.
Benue recorded the largest contractor obligations at N121.69bn, followed by Kwara with N97.91bn, Gombe with N72.95bn and Ebonyi with N64.97bn. Osun and Kaduna reported N43.94bn and N43.52bn respectively, while Borno recorded N43.32bn.
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The figures expose a weakness in public financial management where governments can approve projects and award contracts without ensuring that sufficient funds are available to meet payment obligations.
For contractors, delayed payments create pressure across their operations. Businesses must continue paying workers, servicing loans, purchasing materials and maintaining equipment even when government clients fail to settle invoices. Smaller firms, which often have limited access to affordable credit, are particularly vulnerable.
BusinessDay reported in November 2025 that state contractor arrears stood at N434.87bn in 2024, alongside N626.81bn in outstanding pension and gratuity obligations. Although the two assessments cover different reporting periods, the latest figures show that contractor liabilities remain substantial despite increased revenue inflows to state governments.
Rising revenues, persistent payment failures
Higher federation allocations have given state governments additional fiscal resources, but increased revenue has not automatically translated into timely payments to businesses.
The distinction between budget approval and actual cash availability is central to the problem. A government may appropriate funds for a road or hospital and award the contract, but without predictable cash releases, the contractor effectively finances the project.
The scale of arrears varies considerably between states, suggesting that the problem is not simply a function of economic size or debt stock. Budget execution, cash-flow management and the discipline applied before awarding contracts also determine whether governments can meet their commitments.
The Federal Government faces a related challenge. In May 2026, BusinessDay reported that the finance minister was working towards resolving more than N4tn in outstanding contractor claims through a process of reconciliation and verification. Federal and state liabilities are separate, but both illustrate the difficulties created when public commitments accumulate faster than available funds.
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Contractors are financing public projects
The consequences are particularly visible in construction, where companies often borrow to mobilise workers, purchase materials and maintain sites before receiving subsequent payments.
BusinessDay’s investigation into the failed Moro Bridge replacement project in Kwara State illustrates how funding problems can undermine infrastructure delivery. The Federal Government awarded a N865m contract, with at least N320.6m paid between 2018 and 2023. Construction stalled around 2020/2021, and the contractor attributed the abandonment partly to inadequate funding and unpaid balances.
The disruption extended beyond the company. More than 20 communities depended on the route, and the bridge’s failure affected farmers, traders and transport operators seeking access to markets.
Delayed payments can therefore generate costs throughout the economy. Contractors may suspend work, suppliers may withhold materials and workers may lose income. Communities can also remain cut off from commercial routes and essential services.
Inflation compounds the pressure. When payments are delayed, the prices of cement, steel, fuel, equipment and labour can rise beyond the assumptions used when contracts were awarded. Companies operating under fixed-price agreements may find that the original contract value is no longer sufficient to complete the work, increasing the likelihood of disputes, requests for variations and abandoned projects.
Payment delays expose banks
The accumulation of unpaid government obligations also creates risks for lenders.
Contractors that borrow to execute public projects depend on government payments to service their facilities. When receivables are delayed, companies can struggle to meet repayment schedules even where the underlying contracts are legitimate, and work has been completed.
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BusinessDay reported in July 2026 that delayed capital releases were exposing contractors to financing pressures. Chijioke Ekechukwu of Dignity Finance & Investment Limited warned that irregular government payments could contribute to loan defaults and rising non-performing loans.
Banks may respond by demanding stronger collateral, raising lending rates or reducing exposure to companies dependent on public contracts. Smaller construction firms and suppliers, which have fewer alternative revenue sources, would face particular difficulty securing financing.
This could weaken private-sector participation in infrastructure delivery at a time when Nigeria needs substantial investment to address its infrastructure deficit.
Fiscal credibility matters
Clearing arrears requires more than occasional payments or additional borrowing. State governments need reliable records of outstanding obligations, transparent verification of completed work and clear priorities for settling legitimate claims.
They must also distinguish certified invoices from disputed or poorly documented liabilities. Without proper verification, arrears clearance could reward inflated claims and encourage further fiscal indiscipline.
More importantly, new contracts should be backed by realistic funding and cash-flow plans. Governments that commit to projects without providing for timely payments risk transferring public financing pressures to private companies.
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The N754.4bn contractor burden is therefore more than an accounting issue. It shows how weaknesses in public financial management can constrain business liquidity, delay infrastructure delivery and undermine confidence in government contracts.
Until states align contract awards with available resources and establish predictable payment schedules, higher public revenues may continue to coexist with businesses struggling to collect money for work already completed.
Obidike Okafor is an award winning, seasoned journalist and content consultant. Obidike has left his mark on the global stage, writing for prestigious publications in Nigeria, the UK, South Africa, Kenya, Germany, and Senegal. He also has experience as an editor, research analyst and podcaster.
