South-West states have proposed a combined 2026 budget of approximately N8.7tn for the 2026 fiscal year, with capital expenditure accounting for more than half of total spending, as governors and policymakers seek to translate Nigeria’s fragile macroeconomic stability into sustainable subnational growth.
The disclosure was made by the Development Agenda for Western Nigeria (DAWN) Commission during its 2026 Outlook event, which brought together policymakers, economists, academics, and civil society leaders to examine how the region can strengthen economic competitiveness, manage fiscal risks, and improve welfare outcomes.
The virtual forum, themed “2026 South-West Nigeria Outlook: Advancing Subnational Economic Competitiveness”, focused on how states in the region can domesticate national reforms, respond to global economic shifts, and deepen regional collaboration.
Fragile stability offers narrow growth window
Speaking at the event, Director-General of the DAWN Commission, Dr Seye Oyeleye, said Nigeria’s recent macroeconomic and structural reforms—though painful—have begun to stabilise key economic fundamentals, creating a narrow but critical opportunity for subnational governments.
“Nigeria is operating within a space of fragile stability,” Oyeleye said. “This space presents both risks and opportunities. The real challenge is how subnational governments can convert this fragile stability into productivity-driven growth, fiscal resilience, and improved welfare for citizens.”
He described the South-West as Nigeria’s traditional hub of innovation, enterprise, and economic leadership, stressing that the region must once again take the lead in shaping development outcomes.
According to him, the 2026 outlook dialogue was designed to support evidence-based decision-making by helping states align policies with national reforms, emerging global realities, and regional priorities.
South-West states propose N8.7tn combined 2026 budget with capital spending focus
Presenting the economic and budget outlook, Head of Economic Development and Research at DAWN Commission, Mr Adesoji Farayibi, revealed that the N8.7tn aggregate budget reflects a strong tilt toward capital expenditure, estimated at N4.54tn, signalling an emphasis on infrastructure and long-term growth.
However, he cautioned that rising debt levels and fiscal fragility remain major concerns.
“When we look at the South-West budget numbers, Lagos State alone accounts for about 51 per cent of the regional budget,” Farayibi said.
“While this reflects Lagos’ economic dominance, it is important to remove Lagos as an outlier to properly understand fiscal trends across the rest of the region.”
According to him, even after excluding Lagos, states in the region have recorded improvements in internally generated revenue and capital spending, but debt accumulation is rising steadily.
“This trend matters for sustainability,” he warned, noting that fiscal resilience would depend on how effectively states manage borrowing and deploy resources.
Global headwinds and investment priorities
Farayibi noted that global developments expected in 2026—including renewed protectionist policies under a second Donald Trump administration, prolonged geopolitical tensions, tighter global monetary conditions, and rapid investment in artificial intelligence—will shape capital flows, trade dynamics, and financing conditions.
He said South-West states must position themselves to attract both foreign direct investment and portfolio flows, while ensuring that such capital is channelled into critical sectors.
“Energy, power, transportation, infrastructure, and water must remain priority areas,” he said, adding that states should increasingly rely on multilateral financing rather than Eurobonds due to rising borrowing costs.
He also highlighted emerging regional opportunities, including commercial oil exploration approval in Ogun State, the expected listing of the Dangote Refinery, off-cycle elections in Ekiti and Osun, and growing focus on industrial clusters, agro-processing, and technology-driven enterprises.
Reducing dependence on federal allocations
Farayibi stressed that states must reduce their reliance on federal allocations by strengthening internally generated revenue through tax reforms, improved compliance, and better fiscal administration.
From a state-level perspective, Osun State Commissioner for Budget and Economic Planning, Professor Moruf Adeleke, cautioned against oversimplifying the capital-versus-recurrent expenditure debate.
“Recurrent expenditure is not inherently bad,” Adeleke said. “Institutions must function, and some recurrent spending supports capital projects. The real issue is efficiency and outcomes.”
He disclosed that Osun State’s capital expenditure was close to 50 per cent in 2023 and 2025, rising to about 56 per cent in the current fiscal year.
While acknowledging the importance of capital investment, he argued that states cannot rely solely on budgetary allocations to meet development needs.
“Public–private partnerships and development partnerships are no longer optional,” he said. “Collaboration is essential if we are to deliver the infrastructure our people need.”
Budget performance and productivity concerns
Providing an academic perspective, Dean of the Faculty of Economics and Management Sciences at the University of Ibadan, Professor Abiodun Folawewo, described budgets as aspirational documents whose impact depends largely on implementation.
“Budgets are statements of intention,” Folawewo said. “Whether those intentions translate into productivity or competitiveness depends on performance.”
He noted that in many states, budget implementation rates have struggled to reach 70 per cent, with recurrent expenditure sometimes consuming up to 80 per cent of actual releases.
Folawewo emphasised that productivity growth in the South-West would remain limited without deliberate investment in electricity and power infrastructure.
“We have seen repeated national grid collapses,” he said. “Unless states invest—through partnerships if necessary—in reliable power generation and distribution, budgets will have limited impact on productivity.”
Call for data-driven, depoliticised budgets
Also speaking, Global Director of BudgIT, Mr Seun Onigbinde, warned that budgets across Nigeria are often shaped by political expediency rather than long-term development strategy.
“Capital projects also have recurrent costs,” Onigbinde said. “Budgets should be planning tools, not just lists of numbers.”
He criticised the concentration of development in state capitals at the expense of rural corridors with agricultural, mining, and industrial potential.
“We rarely evaluate outcomes,” he said. “When we build a school or a hospital, are literacy rates improving? Are health outcomes changing?”
Onigbinde urged states to depoliticise budgeting, rely on data, and focus on outcomes that can drive sustainable growth and leave lasting value for future generations.
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