14 states got 70% of their total revenue from FAAC receipts in 2023 – BudgIT 

BudgIT, a leading civic-tech organization advocating for fiscal transparency, has revealed that 14 Nigerian states generated at least 70% of their total revenue in 2023 from allocations through the Federation Account Allocation Committee (FAAC).

According to a statement on Tuesday, this insight is part of BudgIT’s newly launched 2024 State of States Report, which examines the fiscal performance of all 36 states, ranking them based on their financial sustainability.

• The report highlights the dependence of many states on federal transfers, underscoring their vulnerability to fluctuations in oil revenue and external economic shocks.
• The data indicates that 32 states relied on FAAC receipts for over 55% of their total income, and for 34 states, FAAC funds made up at least 62% of their recurrent revenue, excluding Lagos and Ogun.
• The over-dependence on federal allocations raises concerns about fiscal sustainability, as these transfers are subject to crude oil market volatility.

The report notes that states like Akwa Ibom, Imo, Bayelsa, and Jigawa needed more than five times their internally generated revenue (IGR) to meet operational costs, further underscoring their reliance on FAAC.

N8.66 trillion total revenue in 2023 

• In 2023, the cumulative revenue of Nigeria’s 36 states rose by 31.2%, from N6.6 trillion in 2022 to N8.66 trillion, driven partly by the removal of the fuel subsidy.
• FAAC receipts grew by 33.19% year-on-year, contributing N5.4 trillion to states’ total revenue.
• Lagos led with N1.24 trillion, accounting for 14.32% of the total subnational revenue, while the state also topped spending with over N1.49 trillion.

The statement read, “In the 2023 fiscal year, the combined revenue of all 36 states in Nigeria increased significantly by 31.2% from N6.6tn in 2022 to N8.66tn. This growth rate exceeded the previous year’s increase of 28.95%, indicating a notable improvement in fiscal performance. 

“Of the total revenue generated in 2023, Lagos State contributed N1.24tn, representing 14.32% of the cumulative revenue of the 36 States.  Gross FAAC, which grew by 33.19% from N4.05tn in 2022 to N5.4tn in 2023, contributed to 65% of the year-on-year growth of the combined revenue of the 36 states. This increase indicates the additional revenue accrued to states, albeit moderate, due to discontinuing the petroleum subsidy.  

“Also, 32 states relied on FAAC receipts for at least 55% of their total revenue, while 14 states relied on FAAC receipts for at least 70% of their total revenue.

“Furthermore, transfers to states from the federation account comprised at least 62% of the recurrent revenue of 34 states, except Lagos and Ogun, while 21 states relied on federal transfers for at least 80% of their recurrent revenue. The picture painted above buttresses the over-reliance of the state governments on federally distributable revenue and accentuates their vulnerability to crude oil-induced shocks and other external shocks.” 

The report also highlighted significant spending, with total expenditure across states reaching N9.78 trillion—21.19% higher than the previous year’s N8.07 trillion.

Personnel costs across states increased by 12.9%, with the most significant spending growth seen in capital expenditure, which rose by 37.3% to N4.04 trillion.

Total debt hit N10.01 trillion in 2023 

The report also addressed debt trends, revealing that subnational debt surged by 38.1% to N10.01 trillion by the end of 2023.

Rising foreign debt obligations, exacerbated by exchange rate liberalization, added further financial pressure, particularly on states with substantial dollar-denominated loans like Lagos, Kaduna, and Edo.

The statement noted, “The total debt stock of the 36 states surged by 38.1%, from N7.25tn in 2022 to N10.01tn. This growth was partly driven by a N606.12bn increase in domestic debt, resulting in an average year-on-year growth rate of 11.4%. By December 31, 2023, the total domestic debt stood at N5.86tn.

“The situation was further complicated by rising foreign debt, which increased by 4.1%, from $4.43bn in 2022 to $4.61bn in 2023. The liberalisation of the exchange rate exacerbated the financial strain on states, significantly raising their foreign loan repayment obligations in Naira terms. 

“Lagos State remained the most indebted in foreign currency, accounting for 26.9% of the total foreign debt, equivalent to $1.24bn. Further analysis of the debt landscape revealed a considerable variance of N2.74tn in debt repayment obligations when comparing the exchange rate shift from N899.39 per dollar as of December 31, 2023, to the new rate of N1,492.9 as of June 2024.

“The devaluation exposed many states to heightened financial risk, particularly the eight states where more than 50% of the total debt is dollar-denominated. Kaduna and Edo had the highest foreign debt-to-total debt ratios, at 86.06% and 60.54%, respectively. The other states in this group—Ondo, Bauchi, Lagos, Enugu, Ebonyi, and Anambra—had ratios ranging from 50% to 59%.” 

• As states grapple with debt sustainability challenges, BudgIT advises curbing foreign borrowing and emphasizes the need for improved internal revenue generation strategies.
• In healthcare, despite a combined allocation of N2.3 trillion to the sector, states spent only 58.16% of the budget, raising concerns about underfunding.
• BudgIT’s report highlights the critical need for states to prioritize healthcare investments, citing a severe shortage of medical professionals and infrastructure across the country.
• BudgIT concludes that strengthening fiscal sustainability requires states to reduce reliance on federal allocations by leveraging public-private partnerships, technology, and resource management.