By Mohammed Baba Yahaya
The primary reason states take loans is to bridge the massive infrastructure and development deficit that constrains economic growth and quality of life. States simply do not generate enough internal revenue (IGR) to fund the large-scale capital projects required for progress. Instead of waiting decades to save up for a major projects like roads, hospitals and other amenities, a loan allows the state to build it now. The economic benefits generated by these projects are expected to outweigh the cost of the loan over time. This is the fundamental principle of public debt for capital expenditure. Another justification which perchance is the most important one; is by investing borrowed funds into productive infrastructure, such that a state can stimulate its local economy. Better roads lower transportation costs for farmers and businesses, reliable power allows factories to operate, and improved education creates a more skilled workforce. This growth, in turn, would expand the state’s tax base and increase its Internally Generated Revenue (IGR), theoretically creating a future where it can service its debt more easily.
The Crucial Caveats is, the “Why” is Meaningless Without the “How.”The justification for taking loans is entirely contingent on how they are acquired and managed. Loans Must Be for Productive Capital Expenditure, Not Recurrent Expenditure, and this is the golden rule.
Now Let’s Talk About Niger State
Governor Bago has been exceptionally vocal and ambitious in taking significant loans to fund a massive infrastructure overhaul in Niger State. This aligns directly with the primary justification for state borrowing. We are all witnessing a gargantuan infrastructure development across the state the likes of which the state has never seen since 1976. This ambitious plan is a clear attempt to use debt as a tool to “front-load investment” and rapidly close the state’s infrastructure gap, leveraging its potential in agriculture and natural resources.
What makes Bago’s case interesting is that he openly addresses the major caveats of borrowing, at least in his rhetoric. He consistently emphasizes that this borrowing are tied to projects designed to boost the state’s Internally Generated Revenue (IGR). The core argument is that investments in agriculture, energy, and processing will create new taxable economic activities. He has set a target to increase IGR from around ₦1.5 billion monthly to over ₦5 billion monthly. If achieved, this would make the debt burden sustainable. Moreover, these sought-after loans are from multilateral development banks, not commercial banks, which typically offer lower interest rates and longer tenors, making them more sustainable than high-yield debt. And, He has been very public about his borrowing escapade, arguing that it is for tangible projects rather than recurrent expenditure. However, true transparency will be measured by the public disclosure of the full loan terms and rigorous auditing of project execution.
Even though Governor Bago’s case is a high-risk, high-reward experiment in state-level development financing in Nigeria. On one hand, he is following the textbook justification for strategic borrowing: using concessional debt for capital projects in productive sectors with a clear plan to boost IGR. We can see him transform Niger State’s economy and create a model for other states to follow. On the other hand, Bago is also aware of the fact that the plan is exposed to all the classic pitfalls: execution capacity, corruption, currency risk, and political continuity. If it fails, Niger State could be saddled with debt for generations with little to show for it. Hence he is determined to succeed.
Governor Bago provides a live case study. His approach justifies borrowing based on clear, capital-driven objectives but will ultimately be judged by how well he manages the caveats, particularly project execution, transparency, and the actual growth in IGR. His tenure will be a critical test of whether large-scale borrowing can be a successful development strategy for Nigerian states or if it remains a path to fiscal distress.
