The World Bank has faulted the spending priorities of Nigerian state governments, warning that increased revenues resulting from recent economic reforms have not led to corresponding investments in education, healthcare and social protection.
The global lender noted that while states had increased expenditure on essential public services, spending on transport infrastructure had risen at a much faster rate, including in states with poor human development indicators.
The concerns were raised on Tuesday in Abuja by Gloria Joseph-Raji, a Senior Economist at the World Bank Nigeria Office, during the launch of BudgIT’s 2026 State of States Report, themed ‘From Allocation to Impact: Rethinking State Spending Priorities.’
She said, “Spending on education, health, and social protection has also risen substantially, but it has not kept pace with the rapid growth in transport infrastructure spending, even in states with weaker human capital outcomes.”
Joseph-Raji explained that the World Bank’s October Nigeria Development Update, which reviewed budget implementation reports from all 36 states, showed that governments had expanded transport infrastructure and reduced their debt burdens, particularly domestic debt, following increased fiscal allocations.
She attributed the rise in revenue to the removal of petrol subsidies, exchange rate unification and improved tax administration since 2023, as well as federal intervention funds and the settlement of longstanding obligations to states.
According to her, the additional funds had helped state governments meet salary obligations while creating room for better public service delivery.
However, she cautioned that states’ heavy reliance on Federation Account allocations continued to leave their finances vulnerable to changes in federally shared revenue.
“In 2025, federation transfers accounted for more than three-quarters of revenue in all but a handful of states,” she said.
She added that federation transfers represented 73 per cent of total state revenue between 2021 and 2025, excluding Lagos, while internally generated revenue was enough to cover recurrent expenditure in just two states.
Joseph-Raji also noted that states received 26.72 per cent of net Federation Account revenues and now collect 55 per cent of Value Added Tax revenue under the revised revenue-sharing formula.
Meanwhile, BudgIT’s Country Director, Vahyala Kwaga, said the combined revenue of the 34 states included in the organisation’s comparative analysis increased from N4.99tn in 2022 to N15.53tn in 2025, a rise of N10.54tn.
He disclosed that FAAC allocations grew by more than 232 per cent, increasing from N3.43tn to N11.38tn within the same period.
Despite the increase in revenue, Kwaga said the states had spent only N8.60tn, representing 24.4 per cent of their combined N35.22tn approved budgets, as of June 2026.
“We must also examine how effectively they deploy the resources available to them, what they prioritise and whether their spending is delivering the outcomes that citizens need,” he said.
He explained that BudgIT had adjusted its assessment methodology to give greater weight to expenditure on education, healthcare, agriculture, water and sanitation, alongside revenue performance and debt sustainability.
Presenting the report, BudgIT’s Head of Research and Policy Advisory, Adejoke Akinbode, revealed that the combined debt of the 35 states assessed rose by 10.41 per cent, from N10.57tn in 2024 to N11.67tn in 2025.
She identified Lagos as the state with the highest debt at N2.9tn, while Osun spent N100.17bn on debt servicing, accounting for 28.6 per cent of its revenue.
Akinbode said Lagos topped the overall fiscal sustainability ranking, followed by Enugu, Bayelsa, Delta and Kebbi, while Cross River occupied the last position. Rivers State was excluded due to insufficient fiscal data.
She called on state governments to cut administrative expenses, improve revenue collection and ensure that borrowing was channelled into productive investments.
In her keynote address, an economist and lecturer at Amadeus University, Abia State, Dr Iboro Nelson, argued that increased government revenue had not eased the financial hardship households experienced following recent economic reforms.
She disclosed that state governments collectively allocated N1.32tn to healthcare in 2024 but spent N816.64bn, while N2.41tn was budgeted for education, against actual expenditure of N1.61tn.
According to her, average annual spending per resident stood at N3,483 for healthcare and N6,981 for education, translating to approximately N290 and N582 per month, respectively.
“This is actually not fiscal space, but fiscal illusion,” she said.
Nelson attributed the limited developmental impact of increased allocations to poor budget implementation, unrealistic spending projections, duplicated projects and high recurrent expenditure.
Also speaking, Joy Ehinor-Esezobor, a Programme Manager at the Ford Foundation’s West Africa Office, urged governments to assess fiscal performance based on improvements in citizens’ lives rather than revenue increases or rankings.
“The ultimate measure of success should not simply be a better fiscal ranking, but better services and improved living conditions,” she said.
The programme is seeking to establish a framework for developing Nigeria’s underutilised small hydropower resources through private investment and public-private partnerships.