A recent assessment by civic technology organisation, BudgIT, has found that despite a significant increase in revenue accruing to state governments, millions of Nigerians are yet to experience corresponding improvements in public services and living conditions. The organisation's 2026 State of States report disclosed that federal transfers to the 35 states covered by the assessment increased from approximately N5.4trn in 2023 to N11.38trn in 2024. However, BudgIT cautioned that increased government receipts should not be mistaken for improved development outcomes.
The assessment examined the financial performance of 35 states using their 2025 audited financial statements and fourth-quarter budget implementation reports. Rivers State was excluded due to the absence of an audited financial statement for 2025 or budget implementation reports for the period under review. BudgIT considered how state governments generated and managed revenue, controlled expenditure, managed debt obligations, and allocated resources to critical sectors, including healthcare, education, agriculture, water, and sanitation.
The report identified continued dependence on revenue distributed from the Federation Account as a major feature of state finances, despite the substantial increase in federal transfers. Lagos State recorded a comparatively strong internally generated revenue performance, collecting N1.71trn in 2025. Internally generated revenue accounted for 67.72 per cent of Lagos State's recurrent revenue, with federal allocations making up the remaining proportion. However, several other states continued to rely heavily on federal transfers to finance their operations.
BudgIT warned that excessive dependence on federal allocations could expose state governments to revenue uncertainties, particularly when the volume or timing of funds distributed from the Federation Account changes. To improve domestic revenue generation, the organisation recommended more efficient tax administration, measures to eliminate revenue leakages, and the provision of public services that encourage residents to meet their tax obligations.
The report also raised concerns about the rapid increase in government operating costs, warning that higher recurrent expenditure could consume additional revenue and leave states with fewer resources for infrastructure and other development priorities. Abia State was highlighted as an example, where operating expenses increased from N64.19bn in 2024 to N126.68bn in 2025. Within the period, overhead expenditure surged by 197.07 per cent to N70.87bn, while personnel costs increased from N35.08bn to N52.69bn.
On public debt, the report urged state governments to adopt a broader approach to assessing their financial obligations rather than concentrating exclusively on the headline value of outstanding loans. BudgIT noted that some state governments might have substantial outstanding obligations to contractors, pensioners, and retirees through unpaid contractor bills, pensions, and gratuities, even where such liabilities were not fully reflected in conventional debt figures. Lagos State recorded the highest debt stock among the states assessed, with approximately N2.90trn in outstanding debt at the end of 2025.
The assessment also highlighted the significant resources some states committed to servicing their debts. Osun State spent N100.17bn on debt servicing during the period, representing 28.60 per cent of its total revenue. BudgIT recommended that state governments develop medium-term debt management strategies to improve their capacity to monitor borrowing, manage repayment, and reduce their reliance on federal allocations.
Key points
- Despite increased federal transfers, state governments' dependence on Federation Account revenue remains a major feature of their finances.
- BudgIT cautions against interpreting sharp increases in internally generated revenue as evidence of sustainable improvements in states' revenue capacity.
- State governments are urged to adopt a broader approach to assessing their financial obligations, including debt-servicing costs and other financial commitments.
