Nigeria’s state governments are receiving more money than at any other time in recent years, but beneath the surge in revenues lies a growing fiscal concern.
While internally generated revenue (IGR) has continued to rise in absolute terms, it is losing ground to the rapid increase in allocations from the Federation Account Allocation Committee (FAAC), raising fresh questions about whether states are becoming more financially dependent on the federal government rather than building stronger local economies.
A review of official data by Pinnacle Daily from the National Bureau of Statistics (NBS) and the Office of the Accountant General of the Federation (OAGF) shows that the dramatic increase in federal allocation has significantly altered the revenue structure of the states.
Although many states collected more taxes and internally generated more revenue in 2024 than they did a year earlier, FAAC allocations grew at a much faster pace, reducing IGR’s contribution to recurrent revenue.
The result is a shift in the composition of state finances as cumulative IGR as a share of total recurrent revenue fell from 25.27 percent in 2023 to less than 20 percent in 2024, indicating that despite higher internally generated revenue in nominal terms, states relied more heavily on transfers from the Federation Account than they did a year earlier.
The trend comes as FAAC allocations to the 36 states and the Federal Capital Territory (FCT) more than doubled within three years.
Total net allocations rose from N4.01 trillion in 2023 to N5.95 trillion in 2024 before climbing further to N8.36 trillion in 2025.
Combined, states and the FCT received about N18.32 trillion between 2023 and 2025, representing an increase of 108.81 percent from the 2023 level.
FAAC Growth Is Outrunning States’ Own Revenue
The sharp increase in federal allocations has reshaped state finances since the removal of the petrol subsidy. With more money flowing into the Federation Account, governors now have access to unprecedented levels of revenue.
Ordinarily, rising IGR would be viewed as a positive sign of expanding economic activity and improving fiscal capacity. Indeed, total IGR recorded strong growth in 2024, rising by more than 50 per cent compared with the previous year.
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However, the increase was not enough to match the pace of growth in FAAC allocations.
Analysts say the implication is that although states generated more revenue on their own, the importance of that revenue within their overall finances declined.
In other words, state governments are becoming wealthier largely because of federal transfers rather than stronger internally driven economic activity.
Analysis of BudgIT’s latest ‘State of States’ report further shows that the growth in IGR was far from uniform across the country.
Enugu recorded the strongest year-on-year growth of 381.44 per cent, largely driven by a one-off inflow of N78 billion from the Enugu Housing Corporation. Bayelsa followed with a 173.69 per cent increase, while Abia posted growth of 129.37 per cent.
Lagos retained its position as Nigeria’s largest internally generated revenue base, raising N1.26 trillion in 2024, an increase of 50.21 per cent over the previous year. Yet even Lagos, which remains the country’s benchmark for subnational revenue generation, experienced a much faster increase in FAAC receipts.
Its allocations from the Federation Account rose by 94.33 percent in 2024 and reached N531.51 billion in 2025.
The picture was less encouraging in several other states, notably in Kebbi and Yobe, the only states to record declines in IGR in 2024, while states including Ekiti, Sokoto, and Yobe continued to generate less than 11 percent of their recurrent revenue internally.
Such states remain heavily dependent on monthly allocations from the federal capital, Abuja, and are likely to be among the most vulnerable if federal revenues weaken in the future.
Analysts say the figures reveal an important fiscal reality that is often overlooked. That is that rising revenues do not necessarily mean stronger fiscal independence.
Although many states now have more money to spend, a growing share of those resources comes from the Federation Account rather than from productive economic activity within their own borders.
Analysts further stressed that the distinction matters because internally generated revenue is widely regarded as a better measure of the strength and resilience of a state’s economy.
Unlike FAAC allocations, which are largely influenced by oil receipts and centrally collected revenues, IGR reflects the level of business activity, investment, employment, and tax administration within each state.
The shrinking contribution of IGR therefore suggests that many states have yet to broaden their economic base sufficiently to reduce their dependence on federal transfers.
Development economist Professor Ken Ife believes the dramatic increase in FAAC was an expected outcome of the removal of the petrol subsidy, which significantly expanded the amount of revenue available for distribution among the three tiers of government.
He recalled, “As soon as Tinubu removed the subsidy, revenue shared with governors rose significantly and has continued to increase. That is substantial money going to state governments. The question is what they are doing with it.”
For Ife, the issue is no longer whether states are receiving enough money but whether the additional resources are translating into meaningful economic improvements.
“There are two sides of the equation,” Ife said. “One side is receiving a lot of money, while another part of the economy is struggling. Workers say their income has not improved enough despite the higher minimum wage, while businesses complain of delayed government payments. People want to see improvements in their daily lives.”
His comments mirror the trend emerging from the revenue data, which shows that while government finances have strengthened considerably, the growth in federal allocations has increasingly overshadowed states’ own revenue efforts, raising concerns about whether the current windfall is being used to build stronger and more diversified local economies.
What the Declining IGR Share Means
The growing dependence on FAAC is not, in itself, the problem. Federal allocations are an important source of funding for states and are designed to support governance across the country.
The bigger concern is that the pace of growth in those allocations is far exceeding improvements in internally generated revenue, making many states increasingly reliant on a revenue source they do not directly control.
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Analysts say the findings suggest that while states appear financially stronger because more money is flowing into their accounts, many have yet to strengthen the economic activities that generate sustainable local revenue.
As a result, the current fiscal gains could prove temporary if federation revenues decline.
An economist, Dr. Felix Ijeh, said the decline in IGR’s contribution to recurrent revenue points to a growing dependence on federal allocations despite the increase in internally generated revenue.
“The decline in IGR’s share of total recurrent revenue from 25.27 per cent in 2023 to around 20.3 per cent in 2024 shows growing dependence on FAAC federal allocations, despite higher absolute IGR,” Ijeh told Pinnacle Daily.
He added that the trend raises broader questions about the ability of states to sustain their finances over the long term.
“It raises big questions about long-term fiscal sustainability and commitment to building stronger local revenue bases,” he said.
According to Ijeh, the wide differences in revenue performance across states show that policy choices and economic development play a major role in determining how much revenue a state can generate internally.
“Southern states generally do better. Lagos remains the clear leader with strong IGR from taxes, businesses, and ports. It often covers a big part of its budget independently,” he said.
He noted that Enugu’s remarkable increase in IGR demonstrates what can be achieved through targeted reforms.
“Enugu in the Southeast recorded huge IGR growth above 380 percent in recent reports by improving collection systems and supporting local economic activity. Ogun has attracted industries and linked them to better revenue. These states show what is possible with focused policies,” Ijeh said.
However, he said many states continue to face structural obstacles that make them heavily dependent on FAAC.
“In contrast, many Northern and some other states face bigger challenges. They often rely on over 80 percent federal money due to weaker economies, lower business activity, insecurity that scares investors, and limited capacity to collect taxes. States like Kebbi even saw IGR declines in some periods. This heavy dependence makes them very vulnerable,” he explained.
For Ijeh, one of the unintended consequences of the recent increase in FAAC allocations is that it may reduce the urgency for states to pursue difficult reforms aimed at expanding their own economies.
“The surge in FAAC allocations will definitely weaken incentives across the board. Easy federal cash reduces the urgency to grow local economies or fix revenue systems,” he said.
That warning goes to the heart of the fiscal debate. States now have significantly more money than they did just a few years ago, but unless that windfall is used to stimulate investment, strengthen tax administration and broaden the productive base of their economies, the current improvement in public finances may not be sustainable.
The concern becomes even more pronounced if oil prices weaken or federally collected revenues fall in the future.
Since FAAC remains largely dependent on national revenue, any sharp decline would immediately affect states whose budgets rely heavily on monthly allocations.
Ijeh warned that such a scenario could expose weak fiscal structures across many states.
“If federal revenue falls, for example due to lower oil prices, the risks are high. States could face budget shortfalls, rising debt, unpaid workers, and cuts to public services. Poorer regions would suffer most, widening inequality,” he said.
He argued that states still have an opportunity to use the current revenue boom to build more resilient economies before those risks materialize.
“States should digitize tax collection to cut leakages, broaden the tax base fairly, and use public-private partnerships for projects like markets or roads. Transparency builds trust. Leading states like Lagos, Enugu, and Ogun prove these steps work when there is political will,” Ijeh added.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X