In its recently released 2024 State of States Report, civic-tech organisation BudgIT has revealed the significant reliance of 32 out of Nigeria’s 36 states on allocations from the Federation Account Allocation Committee (FAAC). The report, presented in Abuja on Tuesday October 29 2024, highlights that these states sourced at least 55 per cent of their total revenue from federal transfers in 2023, raising serious concerns about their fiscal sustainability, especially in the face of fluctuating oil prices and federal disbursements.
According to the report, “32 states relied on FAAC receipts for at least 55 per cent of their total revenue, while 14 states relied on FAAC receipts for at least 70 per cent of their total revenue. Transfers to states from the federation account comprised at least 62 per cent of the recurrent revenue of 34 states, except Lagos and Ogun, while 21 states relied on federal transfers for at least 80 per cent of their recurrent revenue.”
The report noted that total revenue generated by the 36 states increased by 31.2 per cent, rising from N6.6 trillion in 2022 to N8.66 trillion in 2023. This growth was largely attributed to a 33.19 per cent increase in FAAC allocations, spurred by the removal of the petrol subsidy. However, BudgIT cautioned that such dependence leaves states exposed to revenue fluctuations influenced by external factors.
Lagos State was identified as the largest contributor to total state revenue, generating N1.24 trillion, which accounts for 14.32 per cent of the cumulative revenue. Notably, only Lagos and Rivers states produced sufficient internally generated revenue (IGR) to cover their operating expenses, with IGR to operating cost ratios of 118.39 per cent and 121.26 per cent, respectively.
In stark contrast, states such as Akwa Ibom, Bayelsa, and Taraba required over five times their IGR to meet operating costs, underscoring their significant reliance on federal transfers and external aid. The report indicated that several other states, including Ogun, Anambra, Cross River, Kwara, Kaduna, and Edo, managed to generate IGR sufficient to cover at least 50 per cent of their operating costs, while the remaining depended on federal allocations.
Total expenditure by the 36 states reached N9.78 trillion in 2023, marking a 21.19 per cent increase from the previous year, with Lagos leading the way at over N1.49 trillion and 15.23 per cent of total expenditure. This rise in spending was driven by increasing personnel costs, overheads, and capital investments.
BudgIT also pointed out that all 36 states successfully raised enough revenue including IGR, federal allocations, aid and grants to fully cover their recurrent expenditures, indicating that no state needed to borrow to fund any part of its recurrent spending. However, the total state debt rose by 38.1 per cent, with the combined debt stock reaching N10.01 trillion by the end of 2023.
In light of these findings, BudgIT urged state governments to adopt measures aimed at enhancing fiscal sustainability, advocating for increased internally generated revenue, reduced reliance on FAAC allocations, and improved debt management practices.
