By Suara Sherif
ABUJA — The World Bank has called for a fundamental shift in the fiscal priorities of Nigerian state governments, warning that increased public revenue has yet to translate into commensurate investment in essential services and human development.
The warning comes amid a significant improvement in state finances following major economic policy changes introduced since 2023, including petrol subsidy removal, foreign exchange reforms and improvements in revenue administration.
Speaking on Tuesday, November 3, 2026, at the presentation of BudgIT’s 2026 State of States Report in Abuja, a Senior Economist at the World Bank Nigeria Office, Gloria Joseph-Raji, expressed concern that state governments were committing a growing proportion of their financial resources to transport infrastructure without making equivalent investments in education, healthcare and social protection.
According to her, an examination of budget implementation records from Nigeria’s 36 states showed that although expenditure on essential services had increased, the pace of investment in transport infrastructure was considerably higher.
She noted that the additional fiscal resources available to state governments had created opportunities to improve public service delivery, reduce outstanding domestic obligations and expand infrastructure development. However, she stressed that the benefits of increased revenue would remain limited if spending decisions failed to address critical human development needs.
Joseph-Raji also highlighted the vulnerability of state finances arising from their continued dependence on federally distributed revenue.
She disclosed that allocations from the Federation Account constituted more than three-quarters of the revenue of all but a small number of states in 2025. Between 2021 and 2025, federal transfers represented approximately 73 per cent of aggregate state revenue, excluding Lagos.
The development formed a major part of the concerns raised at the event, where BudgIT examined whether improved government earnings were producing measurable improvements in citizens’ living conditions.
Presenting the organisation’s findings, its Country Director, Vahyala Kwaga, disclosed that the combined revenue of 34 states increased from N4.99 trillion in 2022 to N15.53 trillion in 2025, representing an additional N10.54 trillion.
He attributed much of the increase to higher allocations from the Federation Account, which rose by more than 232 per cent during the period, from N3.43 trillion to N11.38 trillion.
Despite the improved revenue position, Kwaga expressed concern about the pace of budget execution, noting that the states had spent N8.60 trillion by June 2026 out of their combined approved budgets of N35.22 trillion.
He emphasised that assessing government performance should extend beyond the amount of revenue collected to include the effectiveness of expenditure and its impact on the population.
The report also identified growing debt obligations as another challenge confronting state governments.
BudgIT’s Head of Research and Policy Advisory, Adejoke Akinbode, disclosed that the combined debt of 35 assessed states rose by 10.41 per cent, increasing from N10.57 trillion in 2024 to N11.67 trillion in 2025.
Lagos State recorded the largest debt stock at N2.9 trillion, while Osun State devoted N100.17 billion to debt servicing, representing 28.6 per cent of its revenue.
In its assessment of fiscal sustainability, Lagos emerged as the leading state, with Enugu, Bayelsa, Delta and Kebbi occupying the next positions. Cross River ranked lowest among the states assessed, while Rivers State was omitted because of inadequate fiscal information.
Beyond revenue and debt indicators, the discussions highlighted the persistent gap between budgetary commitments and actual expenditure on critical social sectors.
An economist and lecturer at Amadeus University, Abia State, Dr Iboro Nelson, disclosed that state governments collectively allocated N1.32 trillion to healthcare in 2024 but recorded actual expenditure of N816.64 billion.
In education, expenditure amounted to N1.61 trillion against an approved budget of N2.41 trillion.
Nelson argued that poor budget implementation, unrealistic financial projections, duplication of projects and excessive administrative expenditure were among the factors preventing increased government revenue from generating substantial improvements in public welfare.
She described the apparent improvement in government finances without corresponding gains in citizens’ welfare as a misleading measure of fiscal progress.
Also contributing to the discussion, Joy Ehinor-Esezobor, a Programme Manager at the Ford Foundation’s West Africa Office, maintained that the effectiveness of public financial management should ultimately be judged by the quality of services delivered to citizens.
She urged state governments to place greater emphasis on measurable improvements in living standards rather than relying primarily on fiscal rankings and revenue growth as indicators of performance.
The 2026 State of States Report consequently called for stronger domestic revenue mobilisation, tighter control of administrative expenditure and more disciplined borrowing practices.
It further underscored the importance of directing public resources towards productive investments, particularly in education, healthcare, agriculture, water supply and sanitation.
The findings reinforce the growing debate over fiscal accountability in Nigeria, particularly the responsibility of state governments to convert increased financial allocations into sustainable development and improved living conditions for their populations.
