LAGOS, NIGERIA — Nigeria’s nine oil-producing states have significantly reduced their domestic debt burden by approximately N611 billion in a little under two years, a remarkable feat largely attributed to a massive windfall from the 13% derivation fund. Data from the Debt Management Office (DMO) shows the collective domestic debt of these states dropped from N1.66 trillion in June 2023 to N1.05 trillion by March 2025.
This substantial debt relief marks a crucial turning point for states in the Niger Delta, which have long grappled with high debt profiles despite their status as the nation’s primary revenue source.
The Derivation Principle and Its Impact
The 13% derivation fund is a fiscal policy established by the 1999 Constitution that mandates at least 13% of the revenue from natural resources be allocated to the state from which it was extracted. The principle is intended to address the environmental degradation and socioeconomic challenges faced by these communities.
The recent surge in derivation fund payouts, totaling N1.67 trillion between July 2023 and June 2025, is the direct result of several factors, including:

• Increased Oil Production: Improved security in the Niger Delta has led to a significant increase in crude oil production, nearing pre-pandemic levels.
• Subsidy Removal: The removal of the petrol subsidy has freed up more federal funds for distribution to states, boosting the overall amount in the Federation Account.
• Exchange Rate Gains: Favorable foreign exchange rates have also contributed to larger allocations.
  State-by-State Debt Reduction
  The debt reduction was not uniform across all states. The data reveals that the biggest beneficiaries were also the ones who made the most significant dent in their debt.
• Delta State emerged as the top performer, cutting its debt by over half from N465.4 billion to N204.7 billion.
• Akwa Ibom reduced its debt from N199.6 billion to N118.2 billion.
• Bayelsa followed suit, with its debt falling from N134.5 billion to N73.5 billion.
• Ondo State recorded the sharpest proportional decline, slashing its debt from N74 billion to just N11.8 billion.
  While the financial relief is a positive development, some analysts have raised concerns about the long-term sustainability of this trend. They point out that a significant portion of the derivation funds is still being used for loan repayments, which may limit the resources available for crucial infrastructure projects and direct community development. However, the current trend offers a glimmer of hope that the oil-rich states can achieve fiscal stability and better manage their finances for the benefit of their citizens.