NIGERIA’S state governments are spending more on infrastructure than on education, healthcare and social protection despite a sharp increase in revenue following recent economic reforms, the World Bank has warned.
The bank said the spending imbalance could undermine efforts to improve living standards, particularly in states with poor human development indicators, where investment in essential public services remains inadequate relative to infrastructure expenditure.
A Senior Economist at the World Bank Nigeria Office, Gloria Joseph-Raji, raised the concerns in Abuja 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, healthcare and social protection had increased but failed to keep pace with the rapid expansion of transport infrastructure spending.
“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,” she said.
The warning highlights a growing concern over whether Nigeria’s revenue windfall is translating into investments that directly improve citizens’ welfare, particularly as households continue to face economic hardship following recent reforms.
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According to Joseph-Raji, the World Bank’s October Nigeria Development Update, which reviewed budget implementation reports from all 36 states, found that governments had expanded transport infrastructure spending and reduced their debt burdens, particularly domestic debt.
She attributed the increase in state revenues to petrol subsidy removal, exchange rate unification and improvements in tax administration since 2023, alongside federal intervention funds and the settlement of longstanding obligations to states.
The additional resources, she said, had enabled states to meet salary obligations and created opportunities to improve public services.
However, she warned that states remained heavily dependent on federal transfers, leaving their finances vulnerable to fluctuations in revenue shared from the Federation Account.
“In 2025, federation transfers accounted for more than three-quarters of revenue in all but a handful of states,” she said.
Federation transfers accounted for 73 percent of aggregate state revenues between 2021 and 2025, excluding Lagos, while internally generated revenue (IGR) was sufficient to cover recurrent expenditure in only two states, according to the economist.
She said states received 26.72 percent of net Federation Account revenues and now receive 55 percent of Value Added Tax (VAT) revenue under the revised sharing formula.
Joseph-Raji urged state governments to strengthen budget credibility, cash management, expenditure controls, public investment management and debt oversight to ensure that higher revenues produce better outcomes.
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“Strengthening the effectiveness of public expenditure is essential to ensuring that higher revenues translate into better spending outcomes and into lasting improvements in living standards of Nigerians,” she said.
She acknowledged improvements in fiscal transparency, noting that nearly all states now published budgets, quarterly implementation reports, audited financial statements and debt information.
However, she called for greater disclosure of donor-funded activities and stronger fiscal scrutiny of local governments.
States’ revenue surges but spending remains weak
BudgIT’s Country Director, Vahyala Kwaga, said aggregate revenue across the 34 states covered in its comparative analysis rose from N4.99 trillion in 2022 to N15.53 trillion in 2025, representing an increase of N10.54 trillion.
Federation Account Allocation Committee (FAAC) receipts increased by more than 232 percent, from N3.43 trillion to N11.38 trillion over the same period.
Despite the revenue growth, Kwaga said the states had spent only N8.60 trillion, representing 24.4 percent of their combined N35.22 trillion approved budgets, by 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 revised its assessment methodology to give greater weight to spending on education, healthcare, agriculture, water and sanitation, alongside revenue performance and debt sustainability.
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Presenting the report, BudgIT’s Head of Research and Policy Advisory, Adejoke Akinbode, said total debt across the 35 states assessed rose by 10.41 percent, from N10.57 trillion in 2024 to N11.67 trillion in 2025.
Lagos was the most indebted state, with N2.9 trillion, while Osun spent N100.17 billion servicing debt, equivalent to 28.6 percent of its revenue.
Akinbode said Lagos ranked first in overall fiscal sustainability, followed by Enugu, Bayelsa, Delta and Kebbi, while Cross River ranked last. Rivers was excluded because of inadequate fiscal data.
She urged states to reduce administrative costs, strengthen revenue collection and ensure that borrowing was linked to productive investments.
Low spending on essential services raises concerns
In her keynote address, economist and lecturer at Amadeus University, Abia State, Dr Iboro Nelson, said rising government revenues had failed to compensate households for the economic hardship associated with recent reforms.
She disclosed that states collectively budgeted N1.32 trillion for healthcare in 2024 but spent N816.64 billion, while education expenditure stood at N1.61 trillion against N2.41trillion budgeted.
According to her, average annual spending per resident amounted to N3,483 on healthcare and N6,981 on education, equivalent to approximately N290 and N582 monthly, respectively.
“This is actually not fiscal space, but fiscal illusion,” she said.
Nelson blamed weak budget implementation, unrealistic expenditure projections, overlapping projects and excessive recurrent costs for the limited developmental impact of rising allocations.
She proposed zero-based budgeting, realistic revenue forecasts, improved project monitoring and the dedication of part of additional FAAC receipts to human capital development.
A Programme Manager at the Ford Foundation’s West Africa Office, Joy Ehinor-Esezobor, also urged governments to measure fiscal success by improvements in citizens’ lives rather than revenue growth or rankings.
“The ultimate measure of success should not simply be a better fiscal ranking, but better services and improved living conditions,” she said.
She called on legislators, civil society organisations and journalists to investigate whether budgeted projects were completed and public funds reached their intended beneficiaries.
BudgIT’s Senior Research and Policy Analyst, Oludamilola Onemano, said the revised assessment covered revenue performance, fiscal viability, debt sustainability and spending in critical sectors.
He acknowledged that data limitations and reliance on state-reported figures restricted the assessment’s ability to measure actual improvements in citizens’ welfare.
The findings raise questions about the effectiveness of Nigeria’s fiscal reforms at the state level, suggesting that increased allocations alone may not deliver meaningful economic relief without stronger budget execution and greater emphasis on human capital development.
