Rising Allocations, Rising Hardship in States

State revenues are swelling to unprecedented levels, with trillions of naira streaming into government coffers. Yet for millions of Nigerians, hardship is intensifying, and relief remains distant, prompting an unsettling question: Where is the money truly going? Festus Akanbi asks

On paper, Nigeria’s states are earning more than ever. In reality, many citizens are living with less.

This contradiction characterises the current state of Nigeria’s subnational economy. Allocations from the Federation Account Allocation Committee (FAAC) have surged to historic highs, yet poverty, debt pressures, and strained public services persist. The books suggest abundance. The streets tell a different story.

Following the removal of fuel subsidy, exchange rate reforms, and improved oil remittances, FAAC disbursements rose from N8.21 trillion in 2022 to N10.14 trillion in 2023. In 2024, they jumped to N15.26 trillion. By 2025, allocations reportedly approached N33.27 trillion, an extraordinary expansion in nominal terms.

Ordinarily, such a windfall should herald visible development across states: functioning hospitals, modern schools, improved rural roads, and strengthened social services. Instead, rising allocations have coincided with mounting debt, unpaid arrears, and deepening hardship. The paradox is stark.

Debt Amid Abundance

According to BudgIT’s 2025 State of States report, Nigeria’s 36 states spent N2.11 trillion on debt servicing in 2024, 26.45 per cent of total expenditure. More than one in every four naira spent went to creditors.

Total debt stock for 35 states increased from N10.01 trillion in 2023 to N10.57 trillion in 2024. While domestic debt declined, foreign-denominated obligations edged up to $4.58 billion. Twenty-four states now hold more than half of their debt denominated in US dollars, exposing them to exchange-rate volatility.

In states such as Kaduna, Jigawa, and Ondo, over 90 per cent of the debt is denominated in foreign currency. Each time the naira weakens, repayment costs rise in local-currency terms. What appears manageable on paper becomes heavier in practice.

A finance official in one northern state admitted privately: “By the time deductions are made for foreign loans, what reaches us is already reduced. We are surviving on what is left.”

Beyond formal borrowing are legacy burdens: pension arrears, contractor debts, unpaid salaries, and judgment liabilities running into hundreds of billions of naira. These do not always dominate headlines, but they restrict fiscal flexibility.

Mrs. Abiola, a retired teacher in the South-west, put it plainly: “They say the state is receiving more money. My gratuity is still unpaid after two years. So where is the money?”Her question echoes across the federation.

Spending Priorities and Political Cycles

The challenge is not only how much states earn, but how they spend.

BudgIT’s data show that average per capita healthcare spending by states in 2024 was just N3,483. No state reached N10,000 per person. In a country battling fragile primary health systems and high maternal mortality, the figure is sobering.

Education spending reveals similar pressures. While some states prioritise infrastructure projects, flyovers, government complexes, and major roads, investments in teacher training, rural clinics, and social protection often lag.

A public health worker in Kwara State described the reality: “We have new roads in town, but in my clinic, we sometimes ask patients to buy basic supplies. There is no steady funding.”

The political incentive structure partly explains this pattern. Large infrastructure projects are visible and offer ribbon-cutting opportunities within a governor’s tenure. Human capital investments, teacher quality, preventive healthcare, nutrition, yield results over longer horizons, often beyond political cycles.

Budgets, therefore, often reflect electoral timelines as much as development strategy.

Poverty and Purchasing Power

Despite expanding revenues, poverty has worsened. The World Bank estimates that 61 per cent of Nigerians were living on less than $3 per day in 2025, roughly 139 million people. Projections suggest the rate may rise further.

This divergence highlights a central issue: fiscal expansion does not automatically translate into inclusive growth. When increased revenues are absorbed by debt servicing, overheads, and politically visible projects, their impact on household welfare diminishes.

Inflation trends further complicate the picture. Data from the National Bureau of Statistics (NBS) show headline inflation moderating to 15.10 per cent in January 2026, down sharply from 27.61 per cent a year earlier.

On paper, this represents significant disinflation. In reality, many households continue to struggle.

Years of cumulative price increases have reset cost structures. Food inflation may have eased, but transport fares, electricity tariffs, and school fees remain high. The depreciation of the naira has eroded purchasing power, making everyday transactions more burdensome.

A trader in Lagos observed, “They say inflation is coming down. Maybe it is. But what I buy is still expensive, and customers don’t have money.”

The Centre for the Promotion of Private Enterprise (CPPE) describes the inflation trend as real disinflation, especially in food prices. Lower food costs could improve purchasing power. Yet CPPE also warns that falling farm-gate prices may hurt farmers’ incomes, weakening rural livelihoods.

The economy is stabilising statistically, but the social recovery remains fragile.

Broader Fiscal Fragility

At the macro level, Nigeria’s foreign reserves have climbed to about $49 billion, according to the Central Bank of Nigeria (CBN). Exchange rate gaps have narrowed, and investor sentiment has improved.

But reserves are buffers, not substitutes for production. Sustainable fiscal strength requires export diversification, industrial growth, and productivity gains.

Similarly, at the federal level, deficit financing has become entrenched. A projected N25.91 trillion deficit in the 2026 budget underscores how borrowing has become routine. Debt service is expected to consume nearly half of projected revenue.

States mirror this pattern on a smaller scale: rising inflows, rising debt, persistent arrears, and incomplete projects.

A development economist in Abuja summarised the tension: “We are seeing revenue growth without structural transformation. Money is coming in, but it is not compounding into productivity.”

The Development Question

The paradox of rising allocations and rising hardship reflects a deeper misalignment between revenue, risk, and results.

Fuel subsidy removal and exchange rate reforms were designed to free fiscal space for investment in health, education, and infrastructure. For many citizens, however, the costs are visible while the benefits remain distant.

The core question is not whether revenue is increasing. It is whether revenue is being converted into durable assets, healthier populations, skilled workers, competitive industries, and resilient infrastructure.

Nigeria’s states are not entirely constrained by scarcity. They are constrained by debt exposure, legacy liabilities, and spending patterns that prioritise visibility over long-term impact.

Until fiscal windfalls are consistently channelled into human capital and productivity-enhancing investment, the paradox will persist. Allocations will rise. Debt will expand. Statistical improvements will be announced.

And across markets, clinics, and households, citizens will continue to ask: if revenues are growing, why is life still getting harder?