A recent report from BudgIT, a civic-tech organization, presents concerning insights into the fiscal sustainability of Nigeria’s states, revealing that 32 out of 36 states substantially depend on allocations from the Federation Account Allocation Committee (FAAC) for at least 55% of their total revenue in 2023. This reliance underscores the vulnerability of these states to fluctuations in oil revenue and changes in federal disbursements, suggesting a precarious financial landscape for many regional governments. The findings were unveiled during the report launch of BudgIT’s 2024 State of States, which offered a comprehensive evaluation of how states balance internally generated revenue (IGR) against federal allocations, essentially highlighting the systemic issues that plague Nigeria’s state finances.
The data indicate a significant reliance on federal allocations, with 14 states depending on FAAC receipts for over 70% of their revenue, a situation that complicates their fiscal health. Furthermore, 34 states reported that at least 62% of their recurrent revenue came from federal transfers, with 21 states relying on them for over 80%. This dependence on federally distributable revenue exposes state governments to shocks stemming from crude oil price volatility and economic disturbances, suggesting a critical need for greater financial independence.
The report also noted an upswing in total revenue for all 36 states, increasing by 31.2% from N6.6 trillion in 2022 to N8.66 trillion in 2023, largely due to a 33.19% rise in FAAC allocations following the removal of the petrol subsidy. While this growth in revenue presents an opportune moment for reform, it simultaneously raises warnings about the sustainability of states’ revenue sources. Notably, Lagos State emerged as the leading contributor to total state revenue, providing N1.24 trillion, or 14.32% of the total. Nevertheless, only Lagos and Rivers states managed to generate sufficient IGR to cover their operating costs, suggesting a disparity in economic management among the states.
Expenditures escalated as well, with total spending by the states rising by 21.19% to N9.78 trillion in 2023. Personnel costs, operational overheads, and capital investments were major factors driving this increase. Lagos again led in expenditure with over N1.49 trillion, comprising 15.23% of the overall state spending. Conversely, states such as Akwa Ibom, Bayelsa, and Taraba stressed their financial health by requiring more than five times their IGR to meet operating expenses, emblematic of their heavy reliance on federal transfers and grants. Despite these challenges, the report indicated that all states managed to cover their recurrent expenditures without resorting to borrowing.
Interestingly, while recurrent expenditures were covered, the total debt of the states increased by 38.1%, with the combined debt stock reaching N10.01 trillion by the end of 2023. This raises concerns about the sustainability of state finances and the potential ramifications of prolonged financial dependence on federal allocations. BudgIT urged state governments to pursue strategies to enhance fiscal sustainability, focusing on increasing IGR, decreasing reliance on FAAC, and better debt management practices to ensure resilience against economic shocks.
At the launch of the report, BudgIT’s Country Director, Gabriel Okeowo, emphasized the critical need to understand state resource management within Nigeria’s evolving fiscal landscape. The 2024 State of States report, now in its ninth edition, not only analyzes fiscal decisions but also evaluates subnational investments in crucial sectors, such as healthcare. The report noted that while states allocated N2.3 trillion to the health sector in 2023, they only managed to spend 58.16% of this amount, highlighting inefficiencies in resource allocation that could compromise public service delivery. Overall, the report calls for more innovative resource mobilization and management strategies, underscoring the necessity for states to stabilize their economies and ensure financial viability.
