State governments across Nigeria are entering 2026 with expansive spending plans, but limited internally generated revenue is pushing many to depend heavily on federal allocations, loans, and temporary inflows to fund their budgets. Analysts warn that the trend raises concerns about fiscal sustainability and the long-term viability of capital projects.
Okay News reports that a review of appropriation bills and approved estimates shows that only a few states can finance a meaningful share of their expenditure from internally generated revenue, leaving most governors fiscally reliant on Abuja, Nigeria’s administrative capital.
Across the states, disbursements from the Federation Accounts Allocation Committee, value-added tax proceeds, and oil derivation funds for producing states remain the largest and most predictable revenue sources, often supplemented by borrowing and grants.
Lagos State, Nigeria’s commercial capital, plans to spend ₦4.237 trillion in 2026, the largest subnational budget on record, with Governor Babajide Sanwo-Olu projecting strong internally generated revenue but still relying on bonds and loans to close funding gaps.
In Abia State, Governor Alex Otti proposed a ₦1.016 trillion budget dominated by capital spending, but revenue projections leave a deficit of about ₦409 billion, meaning major projects will depend on federal allocations, grants, and borrowing.
A similar pattern is evident in Ogun and Enugu States, where large capital budgets are supported by a mix of internally generated revenue, federal transfers, and significant capital receipts, exposing spending plans to delays if non-recurring funds fall short.
Economists, including Dr Ayodeji Ebo of Optimus by Afrinvest, warn that heavy reliance on federal transfers and debt makes state budgets vulnerable to oil price shocks and discourages innovation in building durable local revenue sources.
Oil-producing states such as Delta and Bayelsa are also betting on stronger federal inflows following fuel-subsidy removal, yet analysts note that less than 10 per cent of projected revenue in some cases comes from internally generated sources.
In northern states including Sokoto and Gombe, low IGR levels mean budgets are heavily dependent on FAAC allocations, grants, and donor support, heightening exposure to fluctuations in national revenue.
Fiscal experts say states must strengthen tax bases, attract investment, and expand public-private partnerships to reduce dependence on Abuja, warning that capital spending is most at risk if projected revenues fail to materialise.
