The Nigerian government will allow cash-strapped states to defer deductions for loans in March so that they will have sufficient funds to pay salaries, the finance ministry said on Monday.
The government will instead make loan repayments to bondholders on the states' behalf, the ministry said. Deductions of 10.9 billion naira ($54.8 mln) were defered in March.
Several Nigerian states borrowed in the domestic bond market and from banks to fund infrastructure projects at the peak of oil prices. But as crude prices plunged, many states have been unable to pay bills or salaries.
"With about 27 states currently experiencing challenges meeting their salary payments...obligatory repayments due to the federal government from the states in respect of their restructured loan obligations are being deferred for the current month," the finance ministry said in a statement.
Nigeria, Africa's biggest economy and top oil producer, relies on crude sales for about 70 percent of government revenues and has been hit hard by the sharp fall in crude prices, leaving many states unable to pay workers.
Government revenues fell to their lowest in five years to 299 billion naira in March, down from 345.095 billion naira in February, due to low oil prices, prompting the deferral.
Governors of Nigeria's 36 states last year requested federal government support to offset a funding crisis amid debts including unpaid salaries totalling around 658 billion naira ($3.3 bln).
The central bank then offered interventions of between 250 billion and 300 billion naira to help clear backlogs while the debt management office restructured commercial loans of more than 660 billion naira.
The finance ministry said government will make repayments to bondholders and offset the debt against liabilities from States.
"All states will receive the relief in this instance, however further deferrals will be subject to the agreement of a fiscal restructuring plan to be prepared by each state with clear measurable objectives," it said.