The World Bank has released a report highlighting the financial performance of Nigerian states, revealing that only Lagos and Enugu generated enough internally generated revenue (IGR) to cover their recurrent expenditure in 2025. This development underscores the reliance of most state governments on federal allocations to meet their day-to-day obligations. According to the report, titled ‘Beyond the Federal Purse: How Higher Revenues Shaped State Priorities’, most states still struggle with insufficient IGR to finance recurrent spending.
The World Bank's Nigeria Development Update (NDU) report, published in October 2026, noted that state governments' IGR covered an average of about 40 per cent of recurrent expenditure between 2021 and 2023. However, this figure improved to approximately 50 per cent in 2024 and 2025. The report attributed the improvement in revenue collection to tax administration improvements and the adoption of automation and digital technology initiatives in revenue administration. This development has contributed to a bigger resource envelope for state governments.
Lagos and Enugu states stood out as exceptions, with their internally generated revenue exceeding their recurrent expenditure in 2025. Lagos generated revenue equivalent to 160 per cent of its recurrent spending, while Enugu recorded a significantly higher ratio of 377 per cent. Enugu state saw the highest growth in its IGR, with total IGR growing from N25 billion to N209 billion, representing 732 per cent growth in real terms between 2023 and 2025.
The World Bank report highlighted Enugu's impressive growth in Direct Assessment Tax, a personal income tax paid by business owners, contractors, landlords, and other self-employed individuals. This component of the state's IGR grew from N280 million to N14.5 billion, representing almost 4,000 per cent growth in real terms over the two-year period. The state achieved this growth by expanding its tax net and implementing digital technology reforms.
Enugu's growth in IGR was attributed to its aggressive expansion of the tax net, capturing thousands of previously unregistered self-employed informal businesses, landlords, and contractors into the formal tax structure. The state also implemented deep systemic and digital technology reforms, automating revenue collection processes and enforcing cashless payments made directly into the state treasury. These reforms enhanced collection efficiency, blocked leakages, and phased out unauthorised roadside collectors.
The World Bank report noted that several state Internal Revenue Services have increasingly adopted digital technology and data integration to automate revenue collection, improve tax compliance, and minimise revenue leakages. The integration of revenue systems with geographic information systems and other government databases has helped states expand their tax base and enhance collection efficiency. Inflation-driven salary increases also contributed to higher Pay-As-You-Earn (PAYE) tax receipts, which remain the largest source of revenue for most states.
The World Bank warned that the inability of most states to finance recurrent expenditure through their own revenue sources remains a significant fiscal risk, particularly if federally collected revenues were to decline. The report emphasised the need for states to continue improving their revenue collection and administration to reduce their dependence on federal allocations.
Key points
- Only Lagos and Enugu states generated enough internally generated revenue to cover their recurrent expenditure in 2025.
- Enugu state recorded a 732 per cent growth in its internally generated revenue between 2023 and 2025.
- The World Bank attributed the improvement in revenue collection to tax administration improvements and the adoption of automation and digital technology initiatives in revenue administration.
