World Bank report highlights widening gaps between revenue growth and public spending across Nigerian states.
Twenty-six Nigerian states increased public expenditure faster than their revenues between 2023 and 2025, raising concerns about the sustainability of state-level spending despite a substantial increase in funds available to subnational governments. The World Bank disclosed this in its October 2026 Nigeria Development Update, which examined how states allocated additional revenues following major economic reforms.
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The report, titled Beyond the Federal Purse: How Higher Revenues Shaped State Priorities, found that median expenditure growth across the 34 states with available data reached approximately 134% in real terms over the two-year period, compared with median revenue growth of 79%.
The findings highlight differences in how state governments managed the additional fiscal resources generated by increased federal allocations, improved tax collection and changes to the country's foreign exchange system.
Abia, Kaduna, Benue Record Widest Spending Gaps
The World Bank identified significant variations in spending patterns across the states examined, with expenditure growth exceeding revenue growth in 26 of the 34 states.
Abia, Kaduna, Benue and Gombe recorded particularly wide gaps between the growth of their revenues and expenditures, indicating that spending expanded considerably faster than available revenue in these states.
However, six states recorded stronger revenue growth than expenditure growth. They were Akwa Ibom, Enugu, Kano, Katsina, Niger and Taraba.
Ekiti and Ogun recorded broadly similar growth rates in revenue and expenditure during the period.
The World Bank noted that these differences did not follow a clear geographical or economic pattern, reflecting varying fiscal decisions among state governments.
States Receive Higher Federal Allocations Following Economic Reforms
The expansion in state expenditure followed a substantial increase in revenue flows from the Federation Account after the Federal Government introduced major economic reforms, including petrol subsidy removal, foreign exchange market reforms and improvements in revenue administration.
According to the World Bank, gross federation revenues increased by 69% in real terms between 2023 and 2025, while net distributable revenues rose by 60%.
State governments recorded the largest increase in their share of distributable federation revenues, which climbed by approximately 129.5% from ₦3.21 trillion in 2023 to ₦7.37 trillion in 2025, measured using 2019 constant prices.
By comparison, the Federal Government's share increased by 40.8%, while local governments recorded a 100.7% increase.
The report attributed the stronger revenue flows to higher statutory allocations, increased Value Added Tax (VAT) collections, the settlement of outstanding federal obligations to states and dedicated intervention funds for infrastructure and security.
These developments expanded the financial resources available to state governments, creating greater room for infrastructure investment and other public expenditure.
Transport Infrastructure Takes Larger Share of State Spending
The increase in available revenue also supported a substantial expansion in state expenditure, particularly on economic infrastructure.
The World Bank reported that aggregate state spending increased from approximately ₦3.4 trillion in 2021 to ₦9.6 trillion in 2025 in real terms.
Transport infrastructure accounted for a significant portion of this expansion. Expenditure on transport rose from approximately ₦100 billion in 2021 to ₦2.5 trillion in 2025, representing 26.5% of total state expenditure.
States also increased spending on housing, education, healthcare, agriculture and social protection, although economic infrastructure recorded the strongest relative shift in spending priorities.
The findings indicate that state governments directed substantial additional resources towards transport networks and other infrastructure projects, alongside investments in sectors that support economic development and public service delivery.
Higher Spending Raises Questions About Fiscal Sustainability
Despite the faster expenditure growth recorded in 26 states, the broader state-level fiscal picture shows that revenues also increased substantially during the period.
The World Bank's assessment found that aggregate state revenues grew by approximately 93% in real terms between 2023 and 2025, while aggregate expenditure increased by 92%. This means that the combined revenue growth across states slightly exceeded expenditure growth, even though the median figures showed a different pattern among individual states.
The distinction highlights the uneven distribution of fiscal performance across the country and the importance of examining individual state finances rather than relying solely on aggregate figures.
The report also found that capital expenditure increased from 46% to 61% of total state spending, reflecting a shift towards infrastructure and other investment-related activities.
For the housing and construction sector, the increased allocation of public resources to infrastructure and housing could influence project delivery, urban development and investment opportunities. However, the sustainability of these investments will depend on states' ability to maintain revenue growth, manage recurrent expenditure and allocate funds efficiently.
The World Bank's findings underscore the importance of stronger fiscal management as state governments continue to benefit from higher federal revenue distributions. Ensuring that increased public spending translates into productive infrastructure, improved public services and sustainable economic development remains a key challenge for state administrations.
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