In 2024, when Revenue inflows into Nigeria’s public coffers rose at an unprecedented pace, state governments were hit hard by steep deductions that significantly cut into their allocations. The latest FAAC Quarterly Review report released by the Nigeria Extractive Industries Transparency Initiative (NEITI) revealed that the federal government deducted a staggering ₦800 billion from state allocations over the course of the year to service foreign debts and fulfill other binding contractual obligations. This deduction, though legal and anticipated under Nigeria’s debt servicing framework, has raised concerns about the Financial Stability of states, especially in light of the surging cost of governance and Inflationary Pressures that have gripped the economy.
Mrs. Obiageli Onuorah, acting Director of Communication and Stakeholders Management at NEIT, in a detailed statement that accompanied the report, confirmed the development and pointed out that growing financial limitations were overshadowing income increases. Notwithstanding the sizable deductions, the Federation Accounts Allocation Committee’s (FAAC) total payments increased dramatically during the year, rising 43 percent from ₦10.64 trillion in 2023 to ₦15.26 trillion in 2024. This increase, driven by fiscal reforms, has yet to alleviate the financial pressures on state governments.
Gains offset by significant deductions from allocations.
This boost was largely driven by major fiscal reforms, particularly the elimination of Fuel Subsidies in the middle of 2023 and a flexible exchange rate policy that greatly enhanced remittances of oil revenue. NEITI disclosed that these reforms caused a sharp increase in naira-denominated Mining earnings of more than 400 percent. According to the breakdown of the 2024 allocations, ₦4.95 trillion went to the federal government, ₦5.81 trillion to the states, and ₦3.77 trillion to local governments.
Interestingly, states saw the most gain in FAAC receipts, rising by 62 percent from ₦3.58 trillion in 2023. However, this encouraging development was undermined by the ₦800 billion that was taken out of state allocations at the source, which accounts for 12.3 percent of their overall share (including derivation revenues for states that produce oil). Lagos State bore the highest deduction burden with ₦164.7 billion taken out, accounting for over 20% of the total amount deducted from the 36 states.
Recommendations for improving economic sustainability.
Other states with substantial deductions are Rivers (₦38.6 billion), Bauchi (₦37.2 billion), and Kaduna (₦51.2 billion). More concerning is the fact that many of these states—which are already struggling with high debt loads—were also among those that received FAAC allocations that were below their needs, raising serious concerns about their capacity to pay salaries, fund development initiatives, and fund essential infrastructure. The Executive Secretary of NEITI, Dr. Ogbonnaya Orji, acknowledged that while the revenue increase was a direct result of essential and bold reforms, the benefits did not come without a price.
He cautioned that states, particularly those whose finances are too dependent on erratic oil income, are being disproportionately affected by the economic effects of these reforms, which include rising inflation, higher debt servicing costs, and an unstable fiscal climate. In response to fiscal pressures, NEITI is advocating for a more strategic and methodical approach to economic management. The organization suggests more cautious assumptions in oil price and production predictions to prevent budget deficits, stabilizing the currency rate to minimize inflation, and—above all—diversifying Government Revenue sources beyond oil and gas.
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The report also highlighted the necessity of institutionalizing fiscal transparency and accountability and increasing internal revenue production at all governmental levels. Although there is optimism over the nation’s economic future due to the increased revenue, many states are still caught in a vicious cycle of growing debt and depleting financial resources. The ongoing challenge for Nigeria will be finding Sustainable Solutions that guarantee the states’ financial stability and allow them to fulfill their short- and long-term commitments.