Nigeria’s 36 states recorded a combined revenue of ₦6.6 trillion in 2022, representing a significant 28.95% increase from the ₦5.12 trillion generated in the previous year. However, this fiscal improvement was not enough to offset even greater spending, as the states collectively expended ₦8.2 trillion—resulting in a fiscal deficit of ₦1.6 trillion.
These figures were revealed in the 2023 edition of the State of States Report published by BudgIT, a civic organization that tracks public finance in Nigeria. The report, released on Tuesday, provides a comprehensive breakdown of how Nigerian states performed financially in 2022, highlighting both revenue improvements and persistent structural weaknesses in spending discipline and domestic revenue generation.
Revenue Grows by Over ₦1.4 Trillion Year-on-Year
According to BudgIT’s analysis, the total revenue earned by Nigeria’s 36 state governments rose from ₦5.12 trillion in 2021 to ₦6.6 trillion in 2022. This increase of ₦1.48 trillion, equivalent to nearly 29%, suggests a positive momentum in public finance across the subnational levels of government. The boost was attributed to both federal allocations and modest improvements in internally generated revenues.
While the states made strides in strengthening revenue performance, the report noted that much of the increase came from external sources such as the Federation Account Allocation Committee (FAAC), with internally generated revenue still contributing a relatively small portion of overall income.
Internally Generated Revenue (IGR) Sees Modest Growth
The report further disclosed that the states collectively improved their internally generated revenue from ₦1.61 trillion in 2021 to ₦1.82 trillion in 2022—a 12.98% increase. BudgIT noted this as an encouraging sign of enhanced domestic revenue mobilization, though it also stressed that the pace of growth was still insufficient relative to the overall size of the Nigerian economy.
Worryingly, the IGR-to-Gross Domestic Product (GDP) ratio stood at just 1.01% in 2022. This figure remains one of the lowest globally and underscores the narrow tax base and overreliance on federally distributed oil revenue by most Nigerian states.
According to analysts, a healthy IGR-to-GDP ratio would ideally exceed 5%, indicating a more self-reliant and sustainable fiscal structure. At the current pace, most Nigerian states remain financially dependent on monthly FAAC distributions to fund salaries, basic services, and infrastructure, raising questions about long-term resilience.
States Spend ₦8.2 Trillion—Overshooting Revenue by Nearly 25%
Despite the uptick in revenue, state governments increased their total expenditure to ₦8.2 trillion in 2022—up from ₦6.5 trillion in 2021. This 24.7% increase in spending resulted in a total fiscal deficit of ₦1.6 trillion for the year.
BudgIT’s findings revealed that recurrent expenditure such as wages, pensions, and overhead costs continued to dominate state budgets, leaving little room for capital investment in infrastructure, healthcare, and education.
The group warned that rising expenditure without a commensurate increase in revenue collection undermines the financial autonomy of states and weakens their capacity to deliver long-term development outcomes.
Fiscal Deficits Raise Alarms Over Subnational Debt and Borrowing Trends
The ₦1.6 trillion shortfall recorded in 2022 highlights a widening gap between income and expenditure among Nigeria’s states. To cover these deficits, many states turned to increased borrowing—both domestic and external—further raising the subnational debt profile.
While the report did not provide a breakdown of the debt figures in this section, BudgIT has previously cautioned that excessive reliance on loans to fund recurrent spending poses a serious threat to fiscal sustainability.
In several states, debt service obligations are rising faster than revenue, potentially crowding out critical social and infrastructure investments. Analysts warn that unless fiscal discipline improves, many states could face solvency risks in the years ahead.
Need for Structural Reform in State Public Finance
BudgIT’s 2023 report calls for urgent reforms in how Nigerian states generate and manage public finances. Recommendations include:
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Expanding the Tax Base: States must implement policies that widen their tax nets beyond formal workers and businesses, particularly by bringing informal sector players into the revenue system.
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Digital Revenue Tracking: Adopting digital tools to monitor and manage tax collection, service fees, and levies can help plug revenue leakages and improve transparency.
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Prioritizing Capital Expenditure: BudgIT emphasized the importance of channeling more resources into capital projects that boost economic activity and improve public service delivery.
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Curbing Recurrent Expenditure: The report also advised states to cut back on bloated administrative costs and implement civil service reforms to reduce overheads.
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Improved Fiscal Transparency: Publishing budget performance reports, procurement data, and debt obligations would enable citizens and stakeholders to hold state governments accountable.
Regional Variation in Revenue and Fiscal Health
Though the report provided aggregated national figures, it is well established that wide disparities exist in the fiscal performance of individual states. For example:
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Lagos State, the commercial hub of Nigeria, consistently outperforms others in terms of IGR and budget implementation.
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Rivers, Ogun, and Delta also maintain relatively strong revenue bases.
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On the other hand, states like Yobe, Taraba, and Ekiti depend almost entirely on FAAC allocations and remain fiscally fragile.
BudgIT’s report encourages benchmarking and peer learning among states, where stronger performers can share best practices with weaker ones to improve fiscal health across the federation.
Conclusion: Revenue Growth Encouraging, But Spending Still Problematic
The increase in revenue by Nigerian states in 2022 is a positive development, especially the modest gains in internally generated revenue. However, these gains are overshadowed by even faster growth in government spending, leading to an unsustainable fiscal deficit of ₦1.6 trillion.
As Nigeria grapples with broader economic challenges—ranging from inflation and currency depreciation to subsidy reform and declining oil production—the need for more responsible and innovative subnational fiscal management has never been more urgent.
To build resilient, self-sufficient states capable of withstanding economic shocks and delivering on their development mandates, Nigerian states must embrace reforms that prioritize domestic revenue growth, fiscal discipline, transparency, and strategic investment. The alternative is a cycle of debt and dependence that weakens both democracy and development.
