Nigerian state governments must avoid repeating the country’s past debt crises through improved borrowing practices and revenue optimisation, the Debt Management Office (DMO) warned Tuesday during a World Bank-supported workshop in Lagos.
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The warning comes as sub-national entities increasingly turn to borrowing to fund infrastructure projects amid Nigeria’s ongoing economic challenges, raising concerns about sustainable debt management across all levels of government.
DMO Director-General Patience Oniha told state policymakers that Nigeria’s previous debt crisis experience should serve as a cautionary tale for current borrowing decisions. “Nigeria had gone through debt crisis in the past. Everything necessary must be done to avoid a repeat,” she stressed during the workshop on borrowing guidelines for top policy makers.
Oniha stated that Nigeria operates as a unified economy where financial decisions by one level of government directly impact others, making coordinated debt management essential for national economic stability.
Rather than relying solely on traditional borrowing, the DMO chief urged state governments to explore Public-Private Partnership (PPP) arrangements for infrastructure development. “PPPs can help improve Nigeria’s economy by attracting private sector investment and expertise to develop infrastructure and deliver public services,” she explained.
According to Oniha, the approach reduces government financial burdens while accelerating project delivery and often produces higher-quality outcomes. “PPPs can also create jobs, stimulate local businesses and foster innovation,” she added.
Alongside responsible borrowing, the DMO emphasised the critical importance of maximising tax revenue collection to reduce states’ dependence on debt financing. “Efficient tax collection increases government revenue without raising tax rates, ensuring that more funds are available for public investment in health, education and infrastructure,” Oniha said.
She highlighted how improved tax compliance and administration can reduce revenue leakages and corruption while making the tax system more predictable and fair.
Lagos State Commissioner for Finance Abayomi Oluyomi acknowledged the borrowing challenge facing state governments, noting that revenue is “never enough” to meet social obligations. “Governments are put in place to cater for the need of society, and fiscal and monetary policies should be aimed at creating comfort for the people,” he said.
However, Oluyomi revealed that currency volatility has significantly impacted Lagos State’s debt burden, with Naira exchange rate fluctuations driving up the state’s debt ratio despite efforts at sustainable debt management.
The commissioner noted that borrowing remains “a cornerstone of sustainable development and economic resilience” when supported by well-researched debt management policies.
The World Bank-assisted workshop aimed to educate state governments on legal frameworks governing borrowing practices. Oniha pointed out that various laws regulate government borrowing at different levels and must be strictly adhered to for sustainable economic development.
“The reason why we want to work with the sub-nationals as to how to borrow is that it is not the Federal Government alone that borrows,” she explained, stressing the importance of understanding proper borrowing procedures and debt sustainability principles.
The workshop indicates growing concerns about coordinated economic management as Nigeria seeks to maintain fiscal stability while funding critical infrastructure development across all levels of government.
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