Report Reveals Over 30 States Dependent on Federal Allocation

The 10th edition of the BudgIT State of States Report has revealed that over 30 states in Nigeria rely on Federal Account Allocation Committee allocations for their revenue, leading to fiscal pressures.

The report, titled ‘A Decade of Subnational Fiscal Analysis: Growth, Decline and Middling Performance’, was launched in Abuja on Tuesday.

BudgIT is Nigeria’s leading civic-tech organisation promoting fiscal transparency and accountability.

Highlighting the overdependence on federal allocations by states, an executive of BudgIT on Channels Television’s Politics Today programme on Wednesday said, “At least thirty states, excluding Lagos, Ogun, and Enugu, relied on FAAC for more than sixty per cent of their recurrent revenue. Lagos remains an outlier, but Ogun and Enugu also seem to be performing quite well.

In total, thirty-one states depended on FAAC for at least eighty per cent of their current revenue, which shows just how challenging the fiscal situation has become for many of them.

“For example, Lagos’s FAAC allocation rose from N4.24bn to N11.38bn, a massive increase that highlights how significant federation account transfers have become within a single fiscal year. Still, credit should go to the states that recorded strong year-on-year growth, as well as those that grew consistently over the ten-year period we reviewed.

Fifteen states grew their internally generated revenue by more than fifty per cent, with Enugu recording the highest increase, while only two states had negative IGR growth. Kebbi is one of those, unfortunately, and it’s a reminder that both the government and citizens there need to take revenue generation more seriously.”

The report added that 29 states relied on FAAC receipts for at least half of their total revenue, 28 states relied on FAAC for at least 55 per cent of their total revenue, and 21 relied on it for over 70 per cent.

The BudgIT executives expressed concern that the more FAAC allocations go to states, the more disincentivised they appear to boost their internally generated revenue.

This is “concerning because the more FAAC money states receive, the less incentive some of them have to develop their own internal revenue sources”. Evidence of this dependency is found in the fact that “the proportion of IGR within total recurrent revenue declined slightly from 25.27 per cent in 2023 to 20.27 per cent in 2024, indicating continued dependence on federal transfers.”

The report maintained that while all states were still “able to cover their total recurrent expenditures without resorting to borrowing”, the number of states struggling to meet basic operational costs has drastically increased. In 2023, “six states needed more than five times their IGR to cover operating costs; in 2024, this number more than doubled to 14, underscoring challenges in IGR growth for several states.”

Only three states appear to be managing this dependency issue effectively, with Lagos remaining an “outlier” and “a returning champion with a 120.87 per cent” IGR-to-operating-expense ratio. Enugu “now leads with an impressive 146.68 per cent IGR-to-operating expense ratio”, driven by recording the highest immediate growth rate of “381.44 per cent”. Conversely, the necessity for both government and citizens to take revenue generation “more seriously” is highlighted by the struggles of states like Kebbi, which was one of only “two states that experienced declines in 2024” in IGR growth.

Furthermore, states must contend with historical liabilities, such as debt, although the report painted a positive picture.

“A closer examination of domestic debt reveals encouraging progress. Between 2022 and 2023, only 15 states reduced their domestic debt, with 12 achieving reductions exceeding N1bn. In contrast, 2024 saw 31 states decrease their domestic debt by at least N10bn, with Lagos, Cross River, and Delta each reducing debt by over N100bn. Collectively, this led to a cumulative decline in domestic debt exceeding N2tn, signalling meaningful efforts to manage subnational liabilities. Similarly, foreign debt reductions were notable: while total foreign debt fell by $74m between 2022 and 2023, the 2023-2024 period witnessed a decline of over $200m. Lagos, Enugu, and Gombe recorded the largest reductions, at $74.56m, $33.39m, and $21.88m, respectively.

“Nonetheless, Lagos remained the most indebted state in foreign currency, with $1.17bn, accounting for more than 25 per cent of total subnational foreign debt, followed by Kaduna ($625.10m), Edo ($383.05m), Cross River ($202.46m), and Ogun ($192.90m). In terms of foreign debt composition, Kaduna, Jigawa, Ondo, Ebonyi, Katsina, Anambra, Edo, and Kebbi each had foreign debt constituting over 80 per cent of their total debt. Overall, 24 states had foreign debt that accounted for more than half of their total debt in 2024. Average debt per capita increased slightly from N40,469 in 2023 to N41,766 in 2024, with 12 states, including Lagos, Edo, Kaduna, Cross River, Ogun, Ekiti, Bayelsa, Bauchi, Abia, Enugu, Ebonyi, and Adamawa, exceeding this average. Notably, Lagos and Edo surpassed N100,000 per capita in debt obligations,” said a statement accompanying the report.

Despite these pressures, the report indicates some positive shifts in expenditure priorities. Index D, which measured “the extent to which a state prioritises capital expenditure over recurrent expenditure”, indicated improvement across the board. The total capital expenditure “surpassed recurrent expenditure by approximately N1tn”, reflecting “a stronger focus on subnational infrastructure and development projects”.

Leading this shift is Abia, which “now tops the ranking, dedicating approximately 77.05 per cent of its total expenditure to capital projects”. Overall, “24 states spent at least half of their total expenditure on capital items”. However, persistent gaps remain, with six states—” Bauchi, Ekiti, Delta, Benue, Oyo, and Ogun, devoting more than 60 per cent of their budgets to personnel and overhead costs, highlighting persisting disparities in expenditure priorities.”

BudgIT’s Group Head of Research, Vahyala Kwaga, addressed the urgent necessity for structural change, drawing lessons from the ten-year review.

He said, “Over the past decade, the State of States has evolved into Nigeria’s most authoritative subnational fiscal analysis. This 10th edition not only reflects the story of growth and imbalance but also underscores the urgent need for reform.”

To secure sustainability, Kwaga insisted that “Fiscal sustainability requires that states look inward, improving revenue systems, cutting waste, and prioritising infrastructure and human development investments that deliver long-term value.”