How high-interest loans, rising debt service test Katsina’s revenue, fiscal outlook
By Aminu Abubakar
Katsina State’s medium-term fiscal framework paints a picture of an ambitious development agenda, but a closer look at borrowing, debt servicing, and internally generated revenue (IGR) suggests growing pressure on the state’s finances.
This is according to a review of the state’s Debt Sustainability Report as of 2025 by SolaceBase.
As capital expenditure plans expand, the state faces the challenge of managing high-interest loans while sustaining revenue growth, raising questions about long-term fiscal stability.
According to the 2025–2028 Medium-Term Expenditure Framework (MTEF), total recurrent revenue for Katsina is projected to rise from ₦187.87 billion in 2025 to ₦302.44 billion in 2028. The growth is expected to be largely driven by statutory allocations from the federal government and Value Added Tax (VAT) collections. Statutory allocations are set to increase from ₦91.07 billion to ₦152.77 billion over the same period, while VAT is projected to rise from ₦58.16 billion to ₦92.06 billion.
Internally generated revenue, the component reflecting the state’s fiscal independence, is projected to grow from ₦38.65 billion in 2025 to ₦57.61 billion in 2028.
Despite this increase, IGR remains a relatively small share of total recurrent revenue, representing less than one-fifth of the total by 2028. This indicates that Katsina’s revenue structure continues to rely heavily on federal inflows, leaving the state vulnerable to national economic fluctuations.
Over the long term, projections show that IGR is expected to grow to ₦90.59 billion by 2034, while gross Federation Account allocations rise from ₦348.04 billion in 2025 to ₦726.13 billion. Grants, another important revenue source, are expected to increase from ₦79.70 billion to ₦126.71 billion within the same period. While these figures suggest a strengthening revenue base, the dependence on external inflows leaves limited fiscal room if economic conditions deviate from assumptions.
Debt service represents one of the more pressing challenges in the state’s medium-term fiscal outlook. Debt service payments are projected at ₦15.36 billion in 2025, increasing sharply to ₦19.38 billion in 2026 before moderating slightly to ₦18.20 billion in 2028. The jump in 2026 coincides with a sharp increase in borrowing, with net financing requirements rising to ₦26.89 billion from ₦13.27 billion in 2025. Even though net financing is projected to decline in 2027 and 2028, the cumulative effect of high-interest loans is expected to put sustained pressure on recurrent revenues.
The structure of borrowing further highlights potential risks. Domestic commercial bank loans with maturities of one to five years attract interest rates of 35 per cent, while longer-tenor loans of six years or more carry rates of 37 per cent. State bonds range from 23.75 per cent for shorter maturities to 25 per cent for longer ones. Other domestic financing instruments carry rates as high as 34 per cent over 15 years.
Such high rates significantly raise the cost of debt over time. The combination of high-interest domestic loans and rising borrowing volumes means debt service could consume a larger share of revenue in the coming years, potentially limiting funds available for essential services, personnel costs, and maintenance of infrastructure. High-cost domestic borrowing also increases the state’s exposure to refinancing risk, especially if short-term loans mature in tight fiscal periods.
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External borrowing, in contrast, offers far lower costs. Concessional loans from multilateral institutions such as the World Bank and African Development Bank carry rates of around 2.5 per cent with maturities extending up to 30 years. Bilateral loans attract interest rates as low as 1.15 per cent over 20 years, while other external financing options are priced at 7.6 per cent over 10 years.
The disparity between domestic and external borrowing terms creates a fiscal dilemma. While concessional loans are cheaper, they may come with strict conditions and potential exposure to exchange rate risks. Domestic loans, though easier to access, are substantially more expensive and could magnify debt service burdens over time.
At the same time, capital expenditure plans are expanding rapidly. Capital spending is projected to rise from ₦181.60 billion in 2025 to ₦279.41 billion in 2028. Transfers to the capital account are also increasing, from ₦83.29 billion in 2025 to ₦180.50 billion in 2028, reflecting the government’s focus on infrastructure development and economic expansion.
However, capital receipts do not rise at the same pace. Grants are projected to grow modestly from ₦19.36 billion to ₦21.07 billion over the period, while other capital receipts fluctuate, falling in 2026 before recovering in later years. This gap between planned expenditure and available capital receipts underscores the necessity for sustained borrowing to fund development priorities, further increasing the debt burden.
Revenue projections are closely linked to national macroeconomic assumptions, including oil production benchmarks, oil prices, and exchange rate stability. Any disruption in oil receipts or federal allocations could reduce available revenue, narrowing fiscal space even as debt obligations remain fixed. The fiscal outlook thus depends not only on the state’s own revenue performance but also on national economic conditions beyond its control.
The projected doubling of total revenue from ₦459.06 billion in 2025 to ₦943.44 billion by 2034 illustrates optimism about economic growth and fiscal reforms. Nevertheless, the reliance on high-interest loans, combined with modest IGR growth, could limit the state’s ability to finance capital projects without increasing debt service pressures.
As recurrent expenditures absorb rising shares of revenue to meet debt obligations, fiscal flexibility may be compromised. Funds earmarked for public services, personnel costs, and infrastructure maintenance could be redirected toward interest and principal repayments, limiting the government’s ability to respond to emerging economic challenges.
Katsina State’s medium-term fiscal framework reflects a balancing act between development ambitions and fiscal discipline. While expanding capital investments can stimulate growth, the reliance on domestic borrowing at high-interest rates places the state’s revenue projections under stress.
The interaction between loans, debt service, and internally generated revenue is likely to define the state’s fiscal stability over the coming years. Managing these pressures will require careful coordination between borrowing strategies and revenue mobilisation, particularly as the state seeks to sustain its development agenda while containing the cost of debt.
In the absence of more robust IGR growth or greater access to low-cost external financing, high-interest loans and rising debt service remain central challenges that could test Katsina’s ability to meet both its revenue targets and broader fiscal objectives.
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