The revelation that no Nigerian state is currently struggling to pay salaries should ordinarily be a source of relief, not cause for celebration. Governments exist, among other things, to pay their workers, provide essential services and create the conditions for citizens to lead productive lives. Therefore, the ability of state governments to meet their wage obligations should be regarded as a basic test of fiscal competence, not the ultimate measure of economic performance.

That is why the disclosure by the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, at the 2026 National Council on Finance and Economic Development (NACOFED) Retreat in Owerri deserves closer scrutiny. Last month, Oyedele disclosed that the Federal, State and Local Governments shared N3 trillion from the Federation Account in August 2026, while calling for greater fiscal responsibility, accountability and cooperation among the three tiers of government.

The figure is impressive. The challenge is ensuring it does not merely produce governments better able to pay salaries, but governments better able to transform the lives of their citizens. Nigeria must resist the dangerous temptation to confuse increased revenue with economic development. Revenue is only an instrument. Development depends on what governments do with it.

For the millions of Nigerians confronting poor roads, inadequate healthcare, overcrowded schools, unreliable public utilities, unemployment and declining purchasing power, the size of the monthly FAAC allocation means little unless the money is translated into tangible improvements in their lives.

A bigger allocation should mean better hospitals, functional schools, improved roads, potable water, productive infrastructure, stronger security and a more competitive environment for businesses. Anything less raises legitimate questions about the quality of governance and public expenditure.

Oyedele was therefore right to challenge states to strengthen their internally generated revenue, attract investment and create jobs rather than remain excessively dependent on federal allocations. That admonition goes to the heart of Nigeria’s defective fiscal structure.

For decades, too many states have operated essentially as monthly beneficiaries of the Federation Account. Their economic survival has depended less on what they produce than on what they receive from Abuja. Such an arrangement may sustain governments, but it cannot build economically resilient states. That is the fundamental issue that the current improvement in federal revenues must persuade states to confront.

The present fiscal reprieve should be seen as a window of opportunity to build stronger economies, not as permission to return to business as usual. Increased allocations provide states with the resources to make strategic investments that can reduce their dependence on future allocations. If those resources are consumed almost entirely by recurrent expenditure, the opportunity is squandered.

State governments should be investing aggressively in productive infrastructure, human capital and economic sectors where they possess comparative advantages. Agricultural states should be building value chains around farming, processing, storage and distribution. States with industrial potential should be attracting manufacturers. States with strategic geographical locations should exploit opportunities in logistics, commerce and tourism. Those with large populations should invest in education, skills and technology to turn their people into productive economic assets.

Diversification must consequently move from political rhetoric to measurable policy. The objective should not simply be to increase IGR for the sake of producing impressive revenue figures. States must expand their economic base. A government that increases taxes on an already struggling population without creating new economic activity has not necessarily achieved fiscal reform. Sustainable IGR comes from a growing economy, expanding businesses, rising employment and increasing productivity.

This also explains why fiscal responsibility must accompany increased revenues. Oyedele’s warning against indiscriminate borrowing is particularly important, given the penchant of public officers, at both federal and state levels, to accumulate local and foreign debts without a commensurate impact on the masses. There is nothing inherently wrong with public borrowing when it finances well-designed projects capable of producing economic and social returns. What is dangerous is borrowing without a credible repayment plan, borrowing for recurrent expenditure or contracting opaque liabilities whose burden will eventually fall on future administrations and citizens.

Every state seeking to borrow should therefore be required to answer basic questions: what is the money for? What will it produce? How will the project generate value? What is the repayment plan? And what safeguards exist to ensure that the funds are not diverted? State Houses of Assembly must also stop treating borrowing requests and budgets as routine executive paperwork. Their constitutional responsibility requires serious scrutiny of public finance. Auditors-general must be empowered, audit reports must receive appropriate attention, and citizens must be able to track how public money is spent.

This is where the current conversation about fiscal federalism must become more sophisticated. Fiscal federalism is not simply about how much money is shared between Abuja and the states. It is about creating a system in which each tier of government has sufficient responsibility, incentives and capacity to generate resources and deliver services efficiently. A system that encourages states to wait for monthly allocations while neglecting their productive capabilities cannot produce sustainable development.

The Federal Government also has a responsibility. Its fiscal reforms must be accompanied by institutional measures that encourage states to become more productive without unnecessarily weakening their constitutional autonomy. States should be encouraged to compete for investments, improve their business environments and develop economic models suited to their circumstances.

Above all, citizens must begin to ask different questions. Instead of asking only how much their states received from FAAC, they should ask what was achieved with the money. How many kilometres of roads were constructed? How many schools were renovated? How many hospitals were equipped? How many jobs were created? What investments were attracted? What new industries emerged? How much IGR was generated from genuine economic expansion rather than aggressive taxation?

These are the metrics by which fiscal performance should ultimately be judged. The ability to pay salaries is important. It restores dignity to public servants and strengthens confidence in government. But it is the beginning of responsible governance, not its conclusion.

Nigeria has been here before. Periods of improved oil and federation revenues have repeatedly generated temporary fiscal comfort, only for the weaknesses of the underlying economic structure to re-emerge when circumstances changed. The country cannot afford another cycle of revenue optimism followed by a fiscal crisis.

The N3 trillion shared in August should therefore be treated not as money to be consumed, but as an opportunity to invest in the future. State governments must seize this moment to build productive economies. State assemblies must scrutinise expenditure and borrowing. Civil society and the media must sustain pressure for transparency. Citizens must demand measurable results. The real test of fiscal federalism is not how much the government receives. It is how much value citizens receive in return.