Several Nigerian states remain exposed to exchange rate risks because a significant proportion of their public debt is denominated in foreign currencies. This raises concerns about the sustainability of their borrowing and future repayment obligations.
The exposure persists even among states that recorded reductions in their total debt stock in 2025, according to BudgIT’s 2026 State of States Report, which identified foreign currency-denominated debt as a key measure of subnational debt sustainability.
The report noted that a high proportion of foreign debt makes state finances vulnerable to exchange rate movements, as fluctuations in the naira can increase the domestic currency cost of servicing and repaying external obligations.
Although the report acknowledged the relative stability of the naira over the six consecutive quarters preceding its assessment, it described foreign currency exposure as a risk that states should not ignore.
Abia, Anambra and Ondo were among the states with particularly high foreign currency exposure. Foreign debt accounted for 76.06 percent of Abia’s total debt stock, 92.73 percent of Anambra’s debt and 93.48 percent of Ondo’s N129.08 billion total debt.
BudgIT said the high foreign currency share of these states’ debt profiles exposes them to exchange rate movements even where their nominal debt stocks are stable or declining.
Anambra, for instance, reduced its total debt by 15.49 percent from N187.88 billion in 2024 to N158.78 billion in 2025, largely through a 59.73 percent reduction in domestic debt, which fell from N28.68 billion to N11.55 billion.
However, the report said the currency composition of the state’s borrowing remained a concern, as foreign debt continued to account for 92.73 percent of its total debt.
Similarly, Abia reduced its total debt by 8.86 percent to N202.22 billion, but foreign debt still represented 76.06 percent of its outstanding obligations.
Cross River also recorded substantial exposure, with foreign debt accounting for 69.96 percent of its N457.31 billion total debt stock at the end of 2025. Its foreign debt increased by 10.11 percent from $202.46 million in 2024 to $222.92 million in 2025, while domestic debt declined by 16.28 percent.
The state spent N69.77 billion on debt servicing in 2025, representing 18.27 percent of its total revenue. BudgIT advised the government to strengthen exchange rate risk assessments, carefully evaluate new borrowing and prioritise concessional financing for projects with clear economic and social returns.
Edo State also recorded significant foreign currency exposure, with external debt accounting for 84.79 percent of its total debt in 2025.
Although the state’s total debt stock declined by 14.52 percent from N701.1 billion in 2024 to N599.3 billion in 2025, its foreign debt stood at $354.03 million, down from $383.05 million in the preceding year.
BudgIT said Edo’s relatively high debt burden per capita and substantial exposure to foreign debt make it necessary to assess the affordability and development returns of new borrowing. It also recommended stronger foreign exchange risk management and a credible repayment plan for outstanding liabilities.
Jigawa recorded another notable increase in foreign currency borrowing. Its foreign debt rose by 95.87 percent to $45.72 million in 2025 and accounted for 97.62 percent of its total debt stock, despite the state remaining the second-least indebted in the country.
The report, however, noted that Jigawa’s debt service-to-revenue ratio was 0.91 percent, indicating that its immediate debt servicing burden remained relatively low.
BudgIT’s revised debt sustainability assessment considers foreign currency exposure alongside total debt relative to revenue, debt servicing obligations and payment arrears. The framework is intended to provide a broader picture of states’ capacity to manage their liabilities and withstand fiscal pressures.
The report urged state governments to adopt credible medium-term debt strategies, ensure transparent reporting of guarantees and arrears, and apply conservative exchange rate risk management.
It also stressed the need for a stronger connection between borrowing and productive capital formation, arguing that debt-financed projects should expand states’ future capacity to provide services and generate revenue.
For states with substantial foreign currency obligations, the challenge is therefore not only reducing the size of public debt but also managing its composition and ensuring that repayment commitments remain sustainable under changing exchange rate conditions.
Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.
