26 States Struggle to Fund Personnel Costs
The finding that 26 states depend on FAAC to meet their personnel obligations has exposed the continuing weakness in state-level fiscal independence, despite a substantial increase in government revenues across Nigeria.
A new analysis of state finances shows that only eight of 34 states covered by BudgIT’s latest report generated enough internally generated revenue to cover their personnel expenditure in 2025.
The eight states were Lagos, Enugu, Ogun, Delta, Kaduna, Kwara, Abia and Anambra, leaving the remaining 26 states facing a combined shortfall between the revenue they generated internally and what they spent on personnel.
According to the figures, the 26 states generated approximately N1.16tn in internally generated revenue during 2025 but spent about N1.91tn on personnel costs, creating a combined gap of roughly N747bn.
The figures were contained in BudgIT’s 2026 report, titled Nigeria’s Economic Reforms: What Has Changed Across Nigeria’s States? An Analysis of State Finances in the Post-Subsidy Years.
The report examined actual figures contained in full-year budget implementation reports for 2022 and 2025, although Akwa Ibom and Rivers were excluded because complete or reliable data were unavailable.
FAAC Revenue Has Increased Sharply
The fact that 26 states depend on FAAC becomes more significant when considered against the enormous increase in federal allocations available to state governments following major economic reforms.
BudgIT reported that aggregate allocations from the Federation Account Allocation Committee increased from N3.43tn in 2022 to N11.38tn in 2025.
That represents an increase of 232.06 per cent over the period, with the report putting the compound annual growth rate at 50.2 per cent.
States also recorded substantial growth in internally generated revenue, with aggregate IGR increasing from N1.57tn in 2022 to N4.15tn in 2025.
However, IGR growth of 165.01 per cent, representing a compound annual growth rate of 38.38 per cent, was significantly slower than the expansion in FAAC receipts.
As a result, the increase in available revenue did not translate into greater financial independence for the average state.
Instead, FAAC’s contribution to aggregate state revenue increased from 68.7 per cent in 2022 to 73.3 per cent in 2025, while IGR’s share declined from 31.4 per cent to 26.7 per cent.
BudgIT said the figures showed that “despite improvements in domestic revenue mobilisation, many states remained heavily reliant on transfers from the Federation Account.”
States Still Rely Heavily on Federal Transfers
The report does not suggest that states should finance government operations entirely from IGR, since statutory allocations from the Federation Account are a legitimate and constitutionally recognised source of government revenue.
However, the figures reveal the extent to which many state governments would struggle to pay their workers without federal transfers.
The state IGR and personnel expenditure figures provide a clearer picture of the challenge because personnel costs represent one of the most basic recurring obligations of government.
Where internally generated revenue consistently falls below personnel expenditure, a state becomes increasingly dependent on allocations from the Federation Account and other sources to meet its wage obligations.
BudgIT therefore argued that strengthening domestic revenue mobilisation would be crucial for improving long-term fiscal sustainability and reducing the vulnerability of states to changes in federal transfers.
The organisation noted that although statutory allocations accounted for the larger share of the increase in revenue, states still needed to improve their ability to generate money domestically.
The argument is particularly important because federal allocations can fluctuate with oil production, international crude prices, exchange rates and broader economic conditions.
Yobe Records One of the Widest Gaps
The disparities between states become particularly striking when individual figures are examined.
Yobe generated only N15.42bn in IGR in 2025 but spent N76.34bn on personnel, meaning its personnel expenditure was almost five times the amount it raised internally.
The resulting gap was approximately N60.91bn, placing Yobe among the states with the greatest disparity between domestic revenue and wage expenditure.
Taraba generated N17.89bn internally while spending N55.60bn on personnel, with its personnel costs therefore exceeding three times its IGR.
Sokoto recorded N20.58bn in IGR against personnel expenditure of N58.65bn, while Adamawa generated N24.14bn compared with a personnel bill of N65.73bn.
Jigawa’s personnel expenditure reached N92.66bn, compared with IGR of N35.27bn, creating a gap of approximately N57.39bn.
Benue also recorded a substantial difference, generating N29.38bn internally while spending N73.94bn on personnel.
Kogi generated N36.50bn but recorded personnel expenditure of N89.20bn, while Kebbi’s N18.41bn in IGR was less than half of its N44.82bn personnel expenditure.
Oyo Has Largest Absolute Shortfall
Among the 26 states where personnel expenditure exceeded IGR, Oyo recorded the largest absolute gap, despite generating more than N100bn internally during the year.
The state generated N102.52bn in IGR but spent N170.04bn on personnel, leaving a difference of approximately N67.51bn.
Yobe followed with a shortfall of about N60.91bn, while Jigawa recorded a gap of N57.39bn between what it generated internally and what it spent on personnel.
Ondo generated N45.63bn in IGR but spent N99.58bn on personnel, leaving a gap of approximately N53.94bn.
Kogi’s personnel expenditure exceeded its IGR by about N52.70bn, while Bayelsa generated N52.15bn against personnel expenditure of N98.75bn, producing a difference of approximately N46.60bn.
Other states where personnel expenditure exceeded internally generated revenue included Bauchi, Borno, Cross River, Ebonyi, Edo, Ekiti, Gombe, Imo, Kano, Katsina, Nasarawa, Niger, Osun, Plateau and Zamfara.
Only Eight States Covered Personnel Bills
The picture was considerably different in the eight states where IGR exceeded personnel expenditure.
Lagos remained the dominant performer by a wide margin, generating N1.85tn in IGR during 2025 compared with personnel expenditure of N333.67bn.
Lagos’s internally generated revenue alone represented approximately 44 per cent of the N4.15tn generated collectively by the 34 states covered in the report.
Enugu also recorded an unusually high IGR figure, generating N406.77bn against personnel expenditure of N56.40bn.
Ogun generated N237.65bn in IGR compared with personnel expenditure of N151.27bn, while Delta generated N206.44bn against personnel costs of N197.81bn.
Kaduna generated N86.72bn against personnel expenditure of N77.63bn, while Kwara generated N85.21bn compared with personnel costs of N65.22bn.
Abia recorded N66.86bn in IGR against personnel expenditure of N62.26bn, while Anambra generated N54.24bn against personnel costs of N39.95bn.
These figures demonstrate the considerable differences in revenue-generating capacity among Nigerian states.
Lagos Distorts the National Picture
Lagos’s exceptional revenue performance also means that the overall IGR picture for the states can appear considerably healthier than the position of the typical state.
When Lagos is removed from the calculation, the remaining 33 states generated approximately N2.30tn in IGR in 2025.
Their combined personnel expenditure, however, stood at about N2.56tn, meaning personnel costs exceeded internally generated revenue by approximately N254bn.
This indicates that Lagos’s enormous revenue base has a substantial influence on aggregate statistics and can mask the deeper fiscal challenges confronting many other states.
The situation demonstrates why state-by-state analysis is important when assessing the impact of Nigeria’s economic reforms and the financial capacity of subnational governments.
Enugu’s IGR Surge Raises Questions
Enugu recorded one of the most dramatic increases in internally generated revenue between 2022 and 2025.
Its IGR rose from N25.12bn in 2022 to N406.77bn in 2025, representing an increase of approximately N381.66bn and a compound annual growth rate of 153.01 per cent.
BudgIT noted, however, that much of the increase came from proceeds collected by the Enugu State Housing Development Corporation following government intervention in the landed-property market.
The organisation raised questions about the classification of the revenue and noted that the receipts could have a cyclical component, meaning they may not necessarily provide the same level of income every year.
Niger recorded the second-fastest IGR growth, with collections increasing from N12.11bn to N66.37bn, while Abia’s IGR rose from N14.67bn to N66.86bn.
Some States Saw IGR Decline
Not every state benefited from the broader increase in internally generated revenue.
Three states recorded lower IGR in 2025 than they did in 2022, with Jigawa suffering the largest decline.
Jigawa’s IGR fell from N59.40bn in 2022 to N35.27bn in 2025, even as its personnel expenditure increased dramatically from N52.37bn to N92.66bn.
Sokoto’s IGR also declined, falling from N23.60bn to N20.58bn, while Ebonyi experienced a smaller reduction from N23.89bn to N23.25bn.
Jigawa’s case is particularly concerning because declining internally generated revenue occurred alongside a substantial increase in personnel costs.
That combination significantly increased the state’s reliance on federal transfers and other revenue sources to meet its obligations.
Oyedele Calls for Stronger Fiscal Federalism
The latest figures have renewed calls for states to improve their revenue-generating capacity, diversify their economies and reduce excessive dependence on federal allocations.
The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, recently called for stronger fiscal federalism, improved revenue generation and greater economic diversification.
Oyedele made the call in Owerri, Imo State, during the 2026 National Council on Finance and Economic Development Retreat.
Speaking on the theme, Strengthening Fiscal Federalism for Equity, Sustainable Development and Economic Resilience in a Volatile Global Economy, the minister called for greater scrutiny of Nigeria’s current allocation and derivation principles.
He also urged the three tiers of government to demonstrate stronger fiscal responsibility, accountability and cooperation to support sustainable economic growth.
Oyedele specifically encouraged state governments to strengthen IGR, attract investments and create employment opportunities instead of relying excessively on federal allocations.
Economists Demand Revenue Reforms
Imo State Governor Hope Uzodimma, represented at the event by his deputy, Chinyere Ekomaru, similarly argued that states should be empowered to generate more revenue and manage available resources more efficiently.
He also warned that continued dependence on oil revenue was no longer sustainable, reinforcing calls for broader economic diversification at the subnational level.
Economist and former Vice-Chancellor of the University of Uyo, Prof Akpan Ekpo, has also urged states to find innovative ways of increasing their IGR.
“States have to think of new ways of increasing their IGRs,” Ekpo said, arguing that better service delivery could attract more economic activity and ultimately increase revenue.
Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, went further by warning that many states were not financially sustainable and could face serious difficulties without increased investment.
“This issue is a fiscal sustainability problem,” Yusuf said, stressing that states needed to attract more investment and reduce their dependence on federal allocations.
He also criticised what he described as bloated state bureaucracies and excessive political appointments, arguing that personnel structures in many states were placing unnecessary pressure on government finances.
According to Yusuf, many state governments need to rationalise their workforce because some maintain far more employees and political appointees than their revenue base can sustainably support.
Read also: Student loan has no political bias, says NELFUND boss
Fiscal Independence Remains a Major Challenge
The latest figures suggest that Nigeria’s improved revenue environment has not automatically produced stronger fiscal independence among its states.
While the removal of petrol subsidies, foreign-exchange reforms and increased Federation Account receipts have substantially expanded the resources available to governments, many states continue to struggle to generate enough money internally to cover even their personnel bills.
The fact that 26 states depend on FAAC for a significant portion of their financial obligations therefore remains an important warning about the country’s fiscal structure.
For state governments, the challenge extends beyond simply increasing tax collections. They must build stronger local economies, improve service delivery, attract private investment, support businesses and develop sustainable revenue sources that can withstand economic shocks.
Without such reforms, higher federal allocations may continue to provide temporary relief without addressing the structural weaknesses that keep many states dependent on Abuja for basic financial sustainability.
The BudgIT figures ultimately show that Nigeria’s state finances have improved in some respects, but the country’s broader fiscal reform agenda remains incomplete, with internally generated revenue still unable to match personnel costs across most states.
About The Author
