NIGERIAN state governments increased capital expenditure by 182 percent between 2021 and 2025, as higher federal allocations and improved internally generated revenue expanded the funds available for infrastructure and other development projects.
Capital spending rose from N3.4 trillion in 2021 to N9.6 trillion in 2025, according to the World Bank’s October 2026 Nigeria Development Update.
The increase followed the removal of petrol subsidies and the unification of the foreign exchange market, which boosted revenues distributed to states through the Federation Account Allocation Committee (FAAC). Growth in internally generated revenue (IGR) also contributed to the expansion in available funds.
World Bank’s Lead Economist, Fiseha Gebregziabher, said state governments had directed a growing proportion of their budgets towards capital investment rather than recurrent expenditure.
Presenting the report in Abuja on Thursday, he said capital expenditure increased by 151 percent in real terms between 2023 and 2025, with its share of total state spending rising from 47.5 percent to 61 percent.
Personnel costs, by comparison, grew by 33.9 percent, while their share of total expenditure declined from 23.7 percent to 16.2 percent.
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The shift suggests that states used part of the additional revenue to expand investment in infrastructure and other economic activities. However, the World Bank noted that the benefits would depend on the quality of projects selected, their execution and subsequent maintenance.
Transport infrastructure absorbs larger budgets
Transport emerged as one of the biggest beneficiaries of the increase in state government spending.
Expenditure on the sector rose from N100 billion in 2021 to approximately N2.5 trillion in 2025, accounting for 26.5 percent of total state expenditure.
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Gebregziabher said road infrastructure recorded the largest spending increases in more than 30 of the 35 states assessed. An analysis of individual state budgets also showed that about 29 of the 33 states examined had shifted their spending priorities towards economic infrastructure.
States also increased allocations to housing and community amenities, agriculture, fuel and energy, alongside higher spending on education and healthcare.
The changing priorities reduced the relative weight of general public services in state budgets. Their share of total expenditure fell from 45.4 percent in 2021 to 25.8 percent in 2025.
The figures indicate a substantial change in how state governments allocate public funds, with economic affairs and infrastructure taking a larger share of expenditure.
At the federal level, however, capital spending moved in the opposite direction. Its share of total expenditure declined from 20.9 percent to 15.8 percent over the period, leaving federal spending more heavily concentrated on recurrent obligations.
The difference reflects the distinct expenditure responsibilities and revenue structures of the federal and state governments.
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States’ internally generated revenue rises 55%
Beyond higher federal allocations, states have also increased their own revenue collections.
The World Bank reported that aggregate IGR rose by 55 percent between 2023 and 2025, supported partly by the adoption of digital systems and improvements in tax administration.
Several states have integrated revenue collection with geographic information systems and other government databases to identify taxable properties, broaden the tax base and improve collection efficiency.
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Higher salaries resulting from inflation also increased receipts from Pay-As-You-Earn taxes, which remain the largest source of internally generated revenue for many states.
Despite the growth, the World Bank warned that most states still cannot finance their recurrent expenditure from their own revenue sources.
On average, state governments’ IGR covered only about 40 per cent of recurrent costs between 2021 and 2023, leaving them dependent on federally collected revenues to meet a substantial portion of their obligations.
Lagos and Enugu were identified as exceptions where internally generated revenue exceeded recurrent expenditure.
In 2025, Lagos State’s IGR was equivalent to 160 percent of its recurrent spending, while Enugu’s stood at 377 percent.
The World Bank said this weakness exposes most states to fiscal risks if federally collected revenues decline. A fall in FAAC allocations could leave governments struggling to pay salaries, meet operating costs and sustain essential public services.
It therefore urged states to strengthen their independent revenue bases to make budgets more sustainable and reduce exposure to fluctuations in federal transfers.
World Bank warns that higher revenues are not enough
World Bank’s Country Director for Nigeria, Mathew Verghis, said states had used the additional resources to expand transport infrastructure, reduce domestic debt and moderately increase spending on education and healthcare.
However, he warned that structural weaknesses in state finances remained a concern despite the increase in available funds.
State governments play a central role in delivering public services, with direct or shared responsibility for education, healthcare, roads, agriculture and power. Their capacity to raise revenue and manage expenditure therefore has significant implications for Nigeria’s development.
Verghis commended states for improvements in fiscal transparency, including the regular publication of audited financial statements, debt reports and budget implementation data.
He nevertheless stressed that higher allocations must translate into better services and measurable improvements in citizens’ welfare.
“Sustaining and deepening recent fiscal gains will require strong growth in internally generated revenues,” he said, adding that the World Bank was ready to work with partners to help Nigeria unlock its economic potential and expand opportunities, particularly for poor and vulnerable people.
