Nigeria’s states have more money. Are they spending it well?

MaTaZ ArIsInG
Dallas, Texas

Nigeria’s economic reforms have created a significant opportunity for state governments to improve public services, strengthen infrastructure and expand the productive capacity of their economies. Whether citizens experience meaningful improvements in their living conditions, however, increasingly depends on how effectively governments convert additional resources into development outcomes.

The World Bank’s October 2026 Nigeria Development Update, Beyond the Federal Purse: How Higher Revenues Shaped State Priorities, provides a basis for examining this challenge. It documents a substantial increase in the resources available to state governments following petrol subsidy removal, foreign exchange reforms and improvements in revenue administration, while raising questions about spending priorities and the capacity to translate higher revenues into better public services.

Between 2023 and 2025, gross federation revenues increased by 69 per cent in real terms, according to the World Bank. Aggregate state revenues rose by approximately 93 per cent over the period, while expenditure increased by about 92 per cent. These gains have given governments greater room to address infrastructure deficits and improve essential services, although the aggregate figures conceal considerable differences in individual states’ fiscal circumstances.

For Nigeria, where businesses face high operating costs and millions of households remain vulnerable to rising food, transport, and energy prices, the quality of public spending is central to broader economic recovery.

Capital expenditure increased from 46 per cent to 61 per cent of total state spending, with transport infrastructure accounting for a substantial part of the expansion. Roads, bridges and transport networks can reduce logistics costs, connect agricultural producers to markets and improve access to employment. In an economy constrained by unreliable infrastructure and expensive transportation, such investments can strengthen productive activity.

Yet higher capital spending does not automatically translate into better economic outcomes. The relevant questions concern whether projects are completed, infrastructure is maintained, and public investments deliver measurable benefits to businesses and households. Without effective project selection, procurement and monitoring, increased allocations can coexist with poor value for money.

The composition of expenditure also raises questions about the relative priority given to human development. Education’s share of total state expenditure declined from 14.9 per cent in 2021 to 12.1 per cent in 2025, while health spending remained broadly stable at about seven per cent. Social protection’s share increased from 1.4 per cent to 4.4 per cent.

These figures do not necessarily indicate absolute reductions in education spending, particularly as overall expenditure has expanded. They nevertheless suggest that education received a smaller share of state budgets, even as governments gained additional fiscal resources.

Physical infrastructure and human capital are complementary investments. For instance, better roads can connect businesses to markets, but a productive economy also requires educated workers, functioning healthcare facilities and effective protection for vulnerable households. States that expand infrastructure without giving sufficient attention to these foundations risk limiting the economic returns on their investments.

The challenge extends beyond spending priorities to fiscal sustainability. The World Bank found that expenditure growth exceeded revenue growth in 26 of the 34 states for which comparable data were available. Although the extent of the gap varied, the finding suggests that stronger revenues have not eliminated fiscal pressures across the federation.

Higher allocations provide an opportunity to address long-neglected needs, but they should not be mistaken for a permanent expansion of fiscal capacity. Federation revenues remain exposed to fluctuations in oil prices and production, while exceptional transfers and refunds may not recur annually. States that increase recurrent commitments without strengthening sustainable revenue sources could struggle to maintain services when receipts weaken.

Dependence on federation transfers compounds this vulnerability. The World Bank report indicates that these transfers accounted for a substantial share of aggregate state revenues between 2021 and 2025. The reported figure of 73 per cent, excluding Lagos, should be read alongside the need for stronger internally generated revenue, collected without imposing excessive burdens on businesses and households.

Ultimately, governments should not be judged solely by how much revenue they collect or spend, but by what their expenditure achieves. Road projects should be assessed by their contribution to connectivity and lower transport costs; education spending by access, learning outcomes and completion rates; and healthcare expenditure by the availability and quality of essential services.

Nigeria’s economic reforms have expanded the fiscal opportunities available to state governments, but the conversion of additional revenue into better living standards will require disciplined spending, sustainable public finances and greater accountability for results. The central issue is no longer simply whether states have more money, but whether their spending choices are building productive economies and improving human welfare.

The test of fiscal recovery is not how much money enters government accounts, but whether public resources help businesses become more productive, children receive better education, communities obtain reliable healthcare and households enjoy greater economic security. State governments have a stronger opportunity to deliver these outcomes; citizens have every reason to demand evidence that they are doing so.

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