Between June 2023 and March 2025, Nigeria’s oil-producing states experienced a significant reduction in their collective domestic debt, shedding approximately N610.84 billion. This fiscal improvement was largely attributed to substantial inflows from the 13% derivation fund, a constitutionally mandated allocation of oil revenues to states where oil is produced. While the total subnational debt of the country decreased during this period, the oil-producing states’ share of it also fell, indicating a faster pace of debt reduction compared to non-oil-producing states. Delta State led the way in debt reduction, slashing its domestic debt by over half, followed by Akwa Ibom and Bayelsa, both achieving reductions of over 40%. This trend was mirrored in Edo, Anambra, Abia, and Ondo, with Ondo achieving the most dramatic proportional decline. However, Rivers State presented a stark contrast, being the only oil-producing state to experience a surge in domestic debt, raising questions about its fiscal management.
Despite the positive trend of debt reduction, a closer examination of the states’ Internally Generated Revenue (IGR) reveals a significant portion was allocated to servicing these debts. While the nine oil-producing states generated a cumulative IGR of N1.39 trillion between the third quarter of 2023 and the first half of 2025, nearly 44% of this amount was absorbed by debt repayments during the same period. This reveals a significant financial constraint, where a considerable portion of self-generated revenue is diverted towards debt servicing, potentially limiting funds available for crucial developmental projects and public services. It is important to note, however, that incomplete IGR data for some states, particularly Bayelsa, Edo, Rivers, and Anambra, may lead to an underestimation of total IGR and an overestimation of the proportion allocated to debt repayment. Even with this caveat, the available data underscores the reliance of these states on federally distributed oil revenues rather than robust internal revenue generation mechanisms, particularly for smaller oil producers like Abia, Imo, and Ondo.
Over a two-year period from July 2023 to June 2025, oil-producing states received a total of N1.67 trillion in 13% derivation allocations. This represents a substantial increase in revenue, with over 40% of the total distributed in the first half of 2025 alone. This significant increase in allocations raises critical questions about the effective and transparent utilization of these funds for the benefit of the citizens and the development of the oil-producing regions. A pattern emerges in the distribution of these funds, with a clear concentration of resources among the top-tier oil-producing states. Delta, Bayelsa, Akwa Ibom, and Rivers consistently received the highest allocations, collectively accounting for approximately 90% of the total disbursements. This disparity leaves the remaining five oil-producing states with a significantly smaller share, further highlighting the imbalance in revenue distribution within the federation.
The breakdown of derivation fund allocations highlights a recurring theme of disparity among the oil-producing states. Delta State consistently received the largest share, followed by Bayelsa, Akwa Ibom, and Rivers, creating a clear hierarchy in revenue distribution. This concentration of resources within a small group of states leaves the smaller producers with significantly less financial leverage, exacerbating existing developmental disparities. While all oil-producing states experienced an increase in allocations over the two-year period, the disproportionate distribution raises concerns about equity and the capacity of smaller producers to address their unique development challenges. The significant increase in derivation funds in the first half of 2025, almost double the amount received in the previous six months, creates both an opportunity and a responsibility for these states to ensure prudent and impactful utilization of these resources.
Despite the significant influx of revenue from derivation funds, concerns remain about their effective utilization and the perceived lack of corresponding development in the oil-producing regions. Criticisms have emerged from various stakeholders questioning the transparency and accountability of state governments in managing these funds. Allegations of mismanagement, lack of visible infrastructural development, and continued dependence on federal allocations despite increased revenue streams have fueled skepticism about the genuine commitment to utilizing these funds for the benefit of the citizens. This underscores the need for greater transparency and accountability mechanisms to ensure that the derivation funds are strategically deployed to address the developmental needs of the oil-producing communities and contribute to sustainable economic growth.
The situation has prompted calls for greater scrutiny and accountability from state governments. Opposition parties, civil society organizations, and community leaders have voiced concerns about the lack of transparency in how these funds are being utilized. They argue that despite the significant financial boost from derivation funds, there is little evidence of commensurate development in the oil-producing regions, particularly in addressing critical issues like infrastructure deficits, poverty, and environmental degradation. The demand for greater transparency extends to calls for detailed public accounting of how these funds are being spent, ensuring that they are truly serving the intended purpose of promoting development and improving the living conditions of the people in the oil-producing communities. This underlines the need for robust oversight mechanisms and public participation in budget monitoring to ensure responsible and impactful utilization of these valuable resources.
