BudgIT, a leading civic technology organization advocating for fiscal transparency, has revealed that 14 Nigerian states generated at least 70% of their total revenue in 2023 from allocations through the Federation Accounts Allocation Committee (FAAC) .

According to a statement released Tuesday, this information is part of BudgIT’s new State of the States 2024 report, which examines the fiscal performance of all 36 states, ranking them based on their financial sustainability.

• The report highlights many states’ reliance on federal transfers, underscoring their vulnerability to fluctuations in oil revenues and external economic shocks.
• The data indicates that 32 states depended on FAAC revenues for more than 55% of their total revenues, and that for 34 states, FAAC funds accounted for at least 62% of their recurrent revenues, excluding Lagos and of Ogun.
• Overreliance on federal allocations raises concerns about fiscal sustainability because these transfers are subject to volatility in the crude oil market.

The report notes that states like Akwa Ibom, Imo, Bayelsa and Jigawa required more than five times their internally generated revenue (IGR) to cover their operational costs, further highlighting their dependence on the FAAC.

Total income of 8.66 trillion naira in 2023

• In 2023, the cumulative revenue of Nigeria’s 36 states increased by 31.2%, from N6.6 trillion in 2022 to N8.66 trillion, partly due to the removal of fuel subsidies.
• FAAC revenue increased by 33.19% year-on-year, contributing N5.4 trillion to total state revenue.
• Lagos tops the list with N1.24 trillion, accounting for 14.32 per cent of total subnational revenue, while the state also leads in expenditure with over N1.49 trillion.

The statement read: “In the 2023 financial year, the combined revenue of Nigeria’s 36 states increased significantly by 31.2%, from N6.66 trillion in 2022 to N8.66 trillion. This growth rate exceeded the previous year’s increase of 28.95%, indicating a notable improvement in fiscal performance.

“Of the total revenue generated in 2023, Lagos State contributed N1.24 trillion, or 14.32 per cent of the cumulative revenue of the 36 states. Gross FAAC, which increased by 33.19% from N4.05 trillion in 2022 to N5.4 trillion in 2023, contributed 65% of the year-on-year growth in revenue combined from all 36 states. This increase indicates the additional revenues accumulated by the States, although moderate, due to the cessation of oil subsidies.

“Additionally, 32 states relied on FAAC revenues for at least 55% of their total revenues, while 14 states relied on FAAC revenues for at least 70% of their total revenues.

“Furthermore, transfers to states from the federation account accounted for at least 62 per cent of the recurrent revenue of 34 states, except Lagos and Ogun, while 21 states depended on federal transfers for at least 80 % of their recurring revenue. The picture described above reinforces state governments’ overreliance on federally distributable revenues and heightens their vulnerability to crude oil-induced and other external shocks.

The report also highlighted significant expenditure, with total expenditure across all states reaching N9.78 trillion, 21.19 per cent higher than the previous year’s N8.07 trillion.

Personnel costs in all states increased by 12.9%, with the most significant expenditure growth being in capital expenditure, which increased by 37.3% to N4.04 trillion.

Total debt reached N10.01 trillion in 2023

The report also addresses debt trends, revealing that subnational debt increased by 38.1 percent to N10.01 trillion by the end of 2023.

Rising external debt, exacerbated by exchange rate liberalization, has added additional financial pressure, particularly on states with large dollar-denominated loans, such as Lagos, Kaduna and Edo.

The statement noted, “The total debt stock of the 36 states jumped by 38.1%, from N7.25 trillion in 2022 to N10.01 trillion. This growth is partly explained by a N606.12 billion increase in domestic debt, translating to an average year-on-year growth rate of 11.4 percent. As of December 31, 2023, the total domestic debt stood at N5.86 trillion.

“The situation was further complicated by the increase in external debt, which increased by 4.1%, from $4.43 billion in 2022 to $4.61 billion in 2023. The liberalization of the rate of currency has exacerbated the financial pressure on states, significantly increasing their obligations to repay foreign naira loans. terms.

“Lagos State remains the most indebted in foreign exchange, accounting for 26.9% of the total external debt, equivalent to $1.24 billion. Further analysis of the debt landscape revealed a considerable gap of N2.74 trillion in debt repayment obligations comparing the change in exchange rate from N899.39 per dollar as of December 31, 2023 to the new rate of 1,492.9 naira in June 2024.

“Devaluation has exposed many states to increased financial risk, particularly the eight states where more than 50% of total debt is denominated in dollars. Kaduna and Edo had the highest external debt to total debt ratios at 86.06% and 60.54%, respectively. The other states in this group – Ondo, Bauchi, Lagos, Enugu, Ebonyi and Anambra – had ratios ranging from 50% to 59%.

• As states face debt sustainability challenges, BudgIT advises limiting foreign borrowing and highlights the need to improve internal revenue generation strategies.
• In health, despite a combined allocation of N2.3 trillion to the sector, states spent only 58.16 per cent of the budget, raising concerns of underfunding.
• The BudgIT report highlights the critical need for states to prioritize investments in healthcare, citing a critical shortage of healthcare professionals and infrastructure across the country.
• BudgIT concludes that to strengthen fiscal sustainability, states must reduce their reliance on federal allocations by leveraging public-private partnerships, technology, and resource management.