The headline number is startling: 26 of the 34 Nigerian states analysed by BudgIT could not generate enough internally generated revenue (IGR) to cover their personnel costs in 2025.
But the deeper financial story is even more uncomfortable.
Nigeria’s states are collecting substantially more money than they did before the petrol subsidy removal and foreign-exchange reforms. Yet, paradoxically, their dependence on the Federation Account Allocation Committee (FAAC) has increased rather than fallen.
BudgIT’s latest analysis shows aggregate FAAC allocations to the states rose from N3.43tn in 2022 to N11.38tn in 2025, a 232.06 per cent increase. State IGR also climbed sharply, from N1.57tn to N4.15tn. But because federal transfers expanded faster than internally generated revenue, FAAC’s share of aggregate state revenue increased from 68.7 per cent to 73.3 per cent, while IGR’s share fell from 31.4 per cent to 26.7 per cent.
The findings come from BudgIT’s 2026 report, Nigeria’s Economic Reforms: What Has Changed Across Nigeria’s States? An Analysis of State Finances in the Post-Subsidy Years, based on actual figures in states’ full-year budget implementation reports for 2022 and 2025. Rivers and Akwa Ibom were excluded because usable data was unavailable or incomplete.
For workers, entrepreneurs, investors and taxpayers, this is far more than an accounting statistic. It raises a fundamental question about the next phase of Nigeria’s economic reforms:
Can states convert their larger revenues into productive economies that create jobs and businesses — or will much of the money continue to circulate through government payrolls, political structures and recurrent spending?
The N747bn problem hiding behind Nigeria’s revenue boom
Across the 26 states that failed the IGR-versus-personnel test, internally generated revenue came to approximately N1.16tn, against about N1.91tn in personnel expenditure.
That created a combined gap of roughly N747bn.
Put differently, these states could internally finance only about three-fifths of their personnel expenditure. The remainder had to be supported by other revenues, including statutory allocations from the Federation Account.
The distinction matters.
There is nothing inherently wrong with a state receiving FAAC allocations. Nigeria is a federation in which states are entitled to statutory transfers. The BudgIT analysis does not suggest that governors should pay salaries exclusively from IGR.
The warning is about dependency.
A state whose internally generated revenue consistently falls far short of its personnel obligations has limited room to absorb a revenue shock, increase public investment, expand services or sustain its workforce without federal transfers.
That vulnerability becomes more significant when the state also carries substantial debt or relies on borrowing.
BudgIT found that state borrowing remained significant in 2025. Lagos borrowed N363.24bn, Oyo N219.97bn, Borno N118.51bn, Bauchi N111.19bn and Taraba N98.81bn.
The danger, therefore, is not simply whether a governor can pay salaries this month. It is whether the state is building an economic base capable of paying salaries next year, after the next oil shock, during a weak FAAC cycle or when borrowing becomes more expensive.
Yobe, Oyo, Jigawa and Ondo reveal the pressure points
The disparity between state economies is stark.
Yobe generated only N15.42bn in IGR in 2025 but spent N76.34bn on personnel. Its wage bill was therefore almost five times its internally generated revenue.
Taraba generated N17.89bn against personnel costs of N55.60bn. Sokoto generated N20.58bn against N58.65bn, while Adamawa produced N24.14bn against a personnel bill of N65.73bn.
Jigawa generated N35.27bn but spent N92.66bn on personnel. Benue generated N29.38bn and spent N73.94bn, while Kogi generated N36.50bn against personnel expenditure of N89.20bn.
In absolute terms, however, Oyo recorded the largest personnel-to-IGR gap among the 26 states.
The state generated N102.52bn internally but spent N170.04bn on personnel — a gap of about N67.51bn.
Yobe followed with N60.91bn, Jigawa with N57.39bn, Ondo with N53.94bn and Kogi with N52.70bn. Bayelsa recorded a personnel gap of N46.60bn.
These numbers provide a more useful picture of fiscal health than simply looking at how much money a governor received from Abuja.
A state receiving more FAAC today is not necessarily becoming economically stronger.
The real test is whether local businesses, workers, property owners, farmers, manufacturers and investors are generating a growing tax base tomorrow.
Lagos changes the national picture
Perhaps the most revealing finding is the extraordinary influence of Lagos.
Lagos generated N1.85tn in IGR in 2025, up from N656.35bn in 2022. Its IGR alone represented about 44 per cent of the N4.15tn generated by the 34 states covered by the BudgIT analysis.
The state spent N333.67bn on personnel, meaning its IGR was more than five times its personnel expenditure.
That creates a statistical trap.
Nigeria can appear to have a strong subnational IGR story while the typical state remains heavily dependent on federal transfers.
Remove Lagos from the calculation and the picture changes dramatically.
The remaining 33 states generated approximately N2.30tn in IGR while spending around N2.56tn on personnel. In other words, personnel expenditure still exceeded internally generated revenue by roughly N254bn.
That is perhaps the clearest measure of Nigeria’s state-level fiscal problem.
Lagos is pulling the national average upward, but it cannot carry the federation indefinitely.
Enugu offers a lesson — and a warning
Enugu’s figures are equally striking.
Its IGR jumped from N25.12bn in 2022 to N406.77bn in 2025, an increase of N381.66bn and a compound annual growth rate of 153.01 per cent — the fastest among the states analysed.
Yet BudgIT says a major factor was proceeds collected by the Enugu State Housing Development Corporation following government intervention in the landed-property market.
That distinction is critical.
A government can generate huge one-off or cyclical receipts from land, asset sales, property transactions or extraordinary collections. But such revenue should not automatically be treated as a permanently expanding tax base.
BudgIT warned about the cyclical nature of Enugu’s receipts and the danger of expanding debt or expenditure aggressively on the back of potentially temporary revenue.
For policymakers, that is a valuable warning:
A revenue spike is not the same thing as a productive economy.
Eight states show what stronger fiscal capacity can look like
Only eight of the 34 states generated more IGR than personnel expenditure in 2025:
Lagos, Enugu, Ogun, Delta, Kaduna, Kwara, Abia and Anambra.
The figures are instructive.
Ogun generated N237.65bn against personnel expenditure of N151.27bn.
Delta generated N206.44bn against N197.81bn.
Kaduna generated N86.72bn against N77.63bn.
Kwara generated N85.21bn against N65.22bn.
Abia generated N66.86bn against N62.26bn.
Anambra generated N54.24bn against N39.95bn.
Edo came remarkably close but missed the threshold narrowly, generating N98.45bn against personnel expenditure of N99.27bn.
The significance goes beyond salary payments.
Where a state has a stronger recurring revenue base, it has greater capacity to fund infrastructure, maintain public services, co-finance projects, support economic development and provide the certainty businesses need before committing capital.
The jobs question: where will the employment come from?
This is where the BudgIT report becomes a jobs story rather than merely a government-finance story.
The fundamental problem with an economy dominated by recurrent government spending is that government payrolls cannot become the main engine of mass employment.
There are limits to how many teachers, civil servants, political appointees and administrative workers any state can absorb.
The sustainable alternative is a larger private economy.
That means agriculture and agro-processing, manufacturing, logistics, construction, tourism, digital services, housing, transport, renewable energy, healthcare, education, mining-related services and export businesses.
The World Bank’s new Nigeria Country Partnership Framework for 2026–2032 explicitly places private-sector job creation at the centre of Nigeria’s development strategy, alongside private capital for infrastructure and agribusiness.
That direction is important because the answer to weak state IGR is not simply “tax citizens harder”.
A more productive strategy is to increase the number and profitability of businesses operating inside the state.
Every new factory, warehouse, hotel, farm-processing facility, logistics company, technology business or formalised SME potentially expands employment and widens the tax base.
That is the virtuous cycle Nigerian states need:
investment → jobs → higher household incomes → stronger businesses → larger tax base → higher IGR → better public services → more investment.
What governors do with the money now matters more than ever
Nigeria’s federal reforms have dramatically increased resources available to the tiers of government.
Finance Minister and Coordinating Minister of the Economy Taiwo Oyedele said in August that monthly FAAC allocations, which had ranged between about N300bn and N600bn before 2023, had subsequently risen above N2tn. FAAC distributed N2.8tn among the Federal Government, states and local governments in June 2026.
But Oyedele also warned that higher allocations alone would not guarantee development. He urged states to strengthen IGR, attract investments and create jobs, while using additional revenue for infrastructure, human capital, productivity and public services.
That message goes to the heart of the BudgIT findings.
The issue is no longer merely how much money states receive.
The bigger issue is what they convert that money into.
A state can receive billions from FAAC and still have a weak economy.
Another can collect considerably less but use it to unlock productive assets, improve its business environment and attract private investment.
The second model is ultimately more sustainable.
The personnel bill is not automatically the enemy
There is another important nuance.
BudgIT found that aggregate personnel expenditure increased from about N1.55tn in 2022 to N2.89tn in 2025, but personnel spending grew much more slowly than total state expenditure. Its share of aggregate expenditure fell from 24.99 per cent to 16.16 per cent over the period.
That suggests the headline “bloated wage bill” should not be applied mechanically to every state.
Public workers provide essential services. Teachers, doctors, nurses, engineers, administrators and other professionals are part of the infrastructure of government.
The more serious problem arises where political structures and payroll expansion consume funds that could otherwise finance productive investment.
Economist Muda Yusuf captured the concern bluntly, saying that many states face a fiscal sustainability problem and need to attract more investment to reduce reliance on federal allocations.
He also criticised bloated bureaucracies and political appointments, arguing that some states needed significant workforce rationalisation.
Prof Akpan Ekpo made the complementary argument that states “have to think of new ways of increasing their IGRs”, including through improved service delivery.
The two arguments point towards the same conclusion: cut waste, but grow the economic base at the same time.
The opportunity hiding inside the fiscal crisis
For Nigerian entrepreneurs, the state-level fiscal problem could create an unexpected opportunity.
Governors under pressure to increase IGR have a powerful incentive to seek private-sector investment and formalise economic activity.
That creates openings for businesses providing:
digital tax and payment systems; accounting and compliance services; logistics; agricultural value-chain services; property and construction; renewable energy; water and waste management; healthcare; education; ICT; business process outsourcing; tourism; and enterprise technology.
The most attractive states will increasingly be those that stop treating businesses merely as taxpayers and begin treating them as economic partners.
A small manufacturer does not only pay taxes. It rents property, employs workers, buys transport, purchases electricity, uses banking services, feeds suppliers and stimulates local consumption.
That is why service delivery matters.
As Ekpo argued, better services can attract more economic activity, which in turn can generate more revenue.
The political economy of FAAC dependence
There is, however, a harder political question.
FAAC dependence can reduce the urgency for some state governments to undertake politically difficult reforms.
Growing IGR normally requires better taxpayer identification, property records, digitisation, stronger enforcement, less leakage, formalisation of informal businesses and improved public services.
These are often difficult because taxpayers resist additional charges when they do not trust government to spend money responsibly.
That produces a vicious circle:
poor services reduce willingness to pay taxes; weak IGR reduces government capacity; weak government capacity worsens services.
Breaking that circle requires something more difficult than a new tax.
It requires a credible exchange between citizen and government:
pay more, receive more.
A warning from Jigawa and Ebonyi
The data also contains important reversals.
Jigawa’s IGR fell from N59.40bn in 2022 to N35.27bn in 2025, while personnel expenditure climbed from N52.37bn to N92.66bn.
Ebonyi’s IGR slipped from N23.89bn to N23.25bn.
Sokoto also experienced a decline, from N23.60bn to N20.58bn.
Jigawa’s numbers are particularly troubling because revenue was falling while personnel obligations were rising.
That is exactly the situation fiscal reform is supposed to prevent.
What citizens should watch in 2026 and beyond
The real measure of success for Nigeria’s state governments should increasingly move beyond the size of monthly FAAC allocations.
Citizens should ask five straightforward questions:
Is IGR growing faster than personnel expenditure?
Is government attracting new private investment?
Are new businesses and formal jobs being created?
Is capital spending producing visible infrastructure and productivity gains?
Is the tax base expanding because the economy is growing, or simply because government is squeezing existing taxpayers harder?
Those questions are important because Nigeria’s post-subsidy revenue expansion is not guaranteed to continue at the same pace.
The more sustainable state is not the one with the biggest allocation from Abuja.
It is the one that can withstand a fall in FAAC because businesses, workers, property, agriculture, industry and services are generating enough economic activity to sustain government.
BudgIT’s evidence shows that Nigeria has made progress. Aggregate state revenue increased enormously, and capital expenditure surged from N2.79tn in 2022 to N10.85tn in 2025.
But the fiscal transformation remains incomplete.
For the majority of states, the next economic reform is not another allocation. It is building an economy that does not need one.
And that is where Nigeria’s biggest jobs and investment opportunity may ultimately lie.
Atlantic Post Money Take
The lesson from the 26-state wage gap is simple but uncomfortable: FAAC can keep a state government functioning; only a productive private economy can make that government financially resilient.
The governors who understand that distinction, and build around investment, enterprise, infrastructure, skills and jobs — will be better positioned for the next phase of Nigeria’s economy.
The rest risk becoming administrators of transfers rather than architects of growth.
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