• 32 states depend on FAAC for 55% revenue, 14 others for 70% 
• BudgIT’s ‘State of the States’ ranks Rivers, Lagos as top fiscal performers
• Healthcare spending lags as states allocate N2.3tr, spend only 58%
• Nigerians feel overtaxed without benefits as IGR surges, analysts warn
• States’ IGR hits N2.43tr; citizens grapple with poverty, uncertainty

A new report evaluating the fiscal performance of Nigeria’s 36 states has unveiled alarming insights into their financial dependency on federal transfers. 
   
Titled “State of the States,” the comprehensive analysis, published by BudgIT, reveals that a staggering 34 states—excluding only Rivers and Lagos—heavily rely on federal funds to meet their operational expenses.
   
BudgIT is a Nigerian civic organisation that applies technology for citizen engagement with institutional improvement to facilitate societal change.  
   
The critical report was unveiled yesterday in Abuja, led by BudgIT’s Country Director, Gabriel Okeowo. The presentation was framed around the theme “Moving Healthcare Delivery from Suboptimal to Optimal,” highlighting the urgent need for improved financial management and healthcare services across the nation. This analysis sheds light on the broader implications of fiscal dependency and the challenges it poses for sustainable development in Nigeria.
   
The 2024 edition employs five key metrics to assess fiscal sustainability: Index A evaluates each state’s capacity to meet operating expenses solely through Internally Generated Revenue (IGR); Index A1 measures year-on-year IGR growth; Index B reviews the state’s ability to meet operating and debt obligations without borrowing; Index C assesses debt sustainability using four key indicators, including the debt-to-revenue ratio; and Index D measures the priority given to capital expenditure relative to operating costs.
   
Rivers State retained its leading position for fiscal sustainability, with Cross River joining the top five. Kebbi State showed the most significant improvement, climbing 12 positions from 28th to 16th, while Jigawa State recorded the steepest decline, dropping 16 spots to rank 36th. Rivers and Lagos were the only two states that generated more than enough IGR to cover their operating expenses, with IGR-to-operating-expense ratios of 121.26 per cent and 118.39 per cent, respectively.
   
Several other states, including Ogun, Anambra, Cross River, Kwara, Kaduna, and Edo, generated IGR sufficient to cover at least half of their operating expenses. In contrast, states such as Akwa Ibom, Imo, Taraba, Yobe, Bayelsa, and Jigawa required over five times their IGR to meet operational costs, reflecting a significant reliance on federal allocations, aid, and grants.
   
The report noted that all 36 states generated enough revenue—comprising IGR, federal allocations, aid, and grants—to fully cover recurrent expenditures, indicating that no state needed to borrow for recurrent spending. The 2023 fiscal year saw combined revenue for the 36 states rise by 31.2 per cent, from N6.6 trillion in 2022 to N8.66 trillion, surpassing the prior year’s growth rate of 28.95 per cent. Lagos State alone contributed N1.24 trillion of this total revenue, representing 14.32 per cent of the state’s cumulative revenue.
   
Federation Account Allocation Committee (FAAC) allocations, which grew by 33.19 per cent from N4.05 trillion in 2022 to N5.4 trillion in 2023, accounted for 65 per cent of the year-on-year growth in state revenues. This increase was largely attributed to additional revenue following the discontinuation of the petroleum subsidy.
   
The report further highlighted that 32 states relied on FAAC for at least 55 per cent of their total revenue, while 14 states depended on FAAC for at least 70 per cent of their revenue. Transfers from the federation account contributed at least 62 per cent of recurrent revenue for 34 states, excluding Lagos and Ogun, with 21 states relying on federal transfers for at least 80 per cent of their recurrent revenue.
   
The report highlights state governments’ overreliance on federal revenue, underscoring their vulnerability to crude oil fluctuations and other external shocks.
   
Total expenditure across Nigeria’s 36 states reached N9.78 trillion in 2023, representing a 21.19 per cent increase from the previous year’s N8.07 trillion. Lagos State led the spending, accounting for N1.49 trillion, or 15.23 per cent of overall subnational expenditure.
   
Various spending categories grew at different rates. Personnel costs rose by an average of 12.9 per cent, overhead costs increased by 26.75 per cent, and capital expenditure saw the highest growth, rising by 37.3 per cent. Personnel costs reached N1.99 trillion, up from N1.75 trillion in 2022; overheads climbed to N1.52 trillion from N1.24 trillion, and capital expenditure grew to N4.04 trillion, up from N3.47 trillion in the prior year.
   
Operating expenses made up 47.36 per cent of total expenditures, rising by 21.17 per cent from N3.8 trillion in 2022 to N4.64 trillion in 2023.
   
Debt servicing claimed N1.25 trillion, or 12.8 per cent of cumulative state spending. An additional N287.56 billion, not recorded as part of the 2023 fiscal expenditure, went towards offsetting arrears owed to contractors, pensions, gratuities, and other liabilities.
   
Total debt stock for the 36 states surged by 38.1 per cent, increasing from N7.25 trillion in 2022 to N10.01 trillion, driven partly by a N606.12 billion rise in domestic debt, which recorded an average growth rate of 11.4 per cent year-on-year.
   
By December 31, 2023, domestic debt was N5.86 trillion. Foreign debts also grew by 4.1 per cent from $4.43 billion in 2022 to $4.61 billion in 2023. Currency liberalisation intensified financial strain on states, raising foreign debt obligations in naira terms. Lagos State was the most indebted in foreign currency, holding 26.9 per cent of the total foreign debt, or $1.24 billion.
   
The currency devaluation led to a N2.74 trillion increase in debt repayment obligations, with the exchange rate shifting from N899.39 per dollar at the end of December 2023 to N1,492.9 by June 2024. Eight states were particularly exposed, with more than 50 per cent of their total debt in foreign currency; Kaduna and Edo had the highest foreign debt-to-total debt ratios at 86.06 per cent and 60.54 per cent, respectively, while Ondo, Bauchi, Lagos, Enugu, Ebonyi, and Anambra had ratios between 50 and 59 per cent.
   
The national average for subnational debt per capita was N40,469 in 2023, with 12 states exceeding this figure. Lagos had the highest debt per capita at N138,034. States also held additional liabilities totalling N1.19 trillion, including N408.69 billion owed in contractor arrears, N521.36 billion in pension and gratuity arrears, N79.64 billion in staff claims, N4.36 billion in judgment debts, and N182.79 billion in other liabilities.
   
States’ fiscal sustainability hinges on their ability to generate revenue internally, leveraging resources, technology, public-private partnerships, human capital, and robust management practices. This revenue mobilisation is essential for funding infrastructure, supporting human capital and social protection, meeting wage requirements, and repairing the social contract.
   
To enhance debt sustainability, the report recommends that states reduce their reliance on foreign loans, particularly considering exchange rate volatility and constrained fiscal conditions, to minimise exposure to adverse currency fluctuations.
   
The report further advises states to implement strong frameworks for debt transparency and accountability, ensuring borrowed funds are directed toward high-impact projects with clear economic returns.
   
In the healthcare sector, all 36 states collectively allocated N2.3 trillion but spent only N1.39 trillion, reflecting a budget performance of 58.16 per cent. For medical equipment, N35.72 billion was allocated. However, nine states reported no expenses for this category in their 2023 budget implementation reports. These states include Edo, Ekiti, Katsina, Ogun, Ondo, Osun, Oyo, Yobe, and Zamfara.
   
Additionally, N104.27 billion was spent on hospital and clinic construction and rehabilitation nationwide. For drug and medical supply purchases, a total of N15.31 billion was recorded, excluding Delta, Ebonyi, and Niger States, which did not report any expenditure in this category.
   
The report emphasises that investment in healthcare remains insufficient and must be prioritised. It highlights a critical need for improvement in subnational health infrastructure, noting that the National Health Facility Registry records 38,182 hospitals nationwide, with 25.92 per cent privately owned and 74.08 per cent government-owned. Of these, 27,022 facilities are primary health centres, with just 1,188 secondary and tertiary facilities. The public primary health centres currently serve an estimated ratio of 8,960 people per facility.
   
While this ratio is below the WHO recommendation of 10,000 people per basic facility, the report warns that it exerts substantial pressure on existing facilities, especially as primary health centres (PHCs) are not evenly distributed across states.
   
Nigeria faces a significant shortage of healthcare professionals, with a doctor-to-patient ratio of four doctors per 10,000 patients—far below the WHO’s recommended 1:600 ratio. Taraba State, for instance, has just 201 doctors, resulting in a doctor-to-patient ratio of 1:17,959, while only 10.9 per cent of Bauchi’s health facilities have at least one general practitioner.
   
The report also underscores challenges such as limited infrastructure, inadequate availability of drugs and medical supplies, and a shortage of medical professionals that hamper states’ ability to tackle chronic and infectious diseases.
  
Malaria remains a major health burden in states like Kogi, Plateau, Niger, Ondo, Borno, Ebonyi, and Plateau, especially during rainy seasons. Borno State reported 527,305 cases in 2023, with 15,036 severe cases. Other prevalent diseases include cholera, tuberculosis (with Kaduna recording 32,297 cases in 2023), and measles, which is more common in northern states. Moreover, Yobe State faces a recurring battle with cerebrospinal meningitis (CSM), while Kogi and Anambra grapple with Lassa fever.

Meanwhile, the IGR of the 36 states of the federation and the FCT rose to N2.43 trillion in 2023. 
   
This is 26.03 per cent higher than the N1.93 trillion recorded in 2022.
This is even as the poverty index in most states is on the increase, worsened by the general rise in the standard of living driven by high inflation in the last year.
   
Analysis showed that Lagos State had the highest IGR during the period with a total of N815.86 billion. The FCT and Rivers State closely follow Lagos, with N211.10 billion and N195.41 billion respectively.

The National Bureau of Statistics (NBS), which released the IGR report yesterday, noted that the IGR has two broad categories: taxes and Ministries, Departments, and Agencies (MDAs) revenue.
   
It said taxes comprise pay as you earn (PAYE), direct assessment, road taxes, stamp duties, capital gain tax, withholding taxes, and local government revenue.
The NBS noted that Taraba, Yobe and Kebbi States reported the lowest revenues, with N10.87 billion, N11.19 billion and N11.74 billion, respectively.
   
It was also noted that PAYE had the most tax revenue recorded during the period, generating N1.24 trillion, representing 63.83 per cent of the total taxes collected, while capital gains tax had the least, at N5.91 billion.
  
The report revealed that total taxes to total IGR stood at about 80 per cent nationally. 
    
It is encouraging that the IGR of most states has increased significantly, showing that they are now becoming more creative and depending less on federal allocations. It is also important to note that the bulk of the IGR comes from taxes, indicating that states have improved their tax collection processes.
   
Nonetheless, in the last one and a half years of this administration, revenues accruing to states have increased significantly. Unfortunately, this has not had any positive impact on the lives of the citizens, who continue to live from hand to mouth, facing shortages in essential services.
   
In Nigeria, 40.1 per cent of the citizens are poor, according to the National Bureau of Statistics 2018/19 national monetary poverty line, while 63 per cent are multi-dimensionally poor, according to the National Multidimensional Poverty Index MPI 2022. 
   
Stakeholders have accused state governors of focusing on white elephant projects that have no direct impact on citizens’ livelihoods.
   
Professor Jonathan Aremu, an economic analyst, expressed concern that the recent increase in government revenue is not improving citizens’ living standards. 
He noted that although revenue may be rising, inflation could have eroded much of its value, meaning it now provides fewer services than before the inflation surge.
   
Lead Director at the Centre for Social Justice (CSJ), Barrister Eze Onyekpere, commented that Internally Generated Revenue (IGR) across states remains minimal compared to the taxable resources available. He stressed that more revenue could be raised if tax evasion were reduced to a minimum.
   
“Nigerians are not overtaxed, but the critical issue lies in the allocation and impact of IGR funds,” he noted. “If tax revenue were directed toward enhancing the ease of doing business and improving living standards, citizens would be less likely to object to taxation. This, in turn, would facilitate greater productivity and expand the taxable resource base.”
   
Professor Godwin Oyedokun of Lead City University, Ibadan, added that the increase in IGR—mainly from taxes—raises concerns about overtaxation if citizens do not see tangible benefits from these funds. He advised states to use this additional revenue to improve public services, enhance infrastructure, and support economic development to make a meaningful difference in citizens’ lives.
   
He explained that economic pressures, such as inflation and unemployment, can amplify the sense of financial strain, making people feel over-taxed without adequate benefits.
   
“The perception of being over-taxed can arise from various factors, including the overall tax burden relative to income, the visibility and effectiveness of public services funded by taxes, frequent and complex tax changes, and a lack of transparency in government spending,” he concluded.