The total internal revenue generated by the thirty-six states in Nigeria in 2023 increased by 26% compared to 2022. It is also the highest internally generated revenue accrual by all the states in the last five years.
This revenue growth may be due to the proliferation of new revenue sources, increased productivity, or improved tax remittances, which can amplify states’ financial strength and increase scarce resources leading to enhanced service delivery.
The State governments derive their internal revenue from various sources including Pay-As-You-Earn (PAYE), Direct Assessment, Road Tax, Stamp Duties, Capital Gains Tax, Withholding Tax, Local Government Revenue, revenues from government MDAs, and other tax sources.
While there is a general increase in the aggregate internally generated revenue, only a few states increased their revenue in real-time. States like Lagos, Rivers, FCT, Ogun and Delta were the top six states with the highest Internally Generated Revenue in the years reviewed. The inability of other states to generate enough revenue to cope with their expenditure responsibilities remains a serious challenge.
Ensuring adequate revenue at all government levels has become essential, given spending priorities centred on poverty alleviation, job creation, economic growth, and wealth generation. State governments now face the challenge of reducing their dependence on federal funds to fulfil their financial requirements.
Total Revenue: FAAC to IGR of States
To secure funding for budgets, states depend on internal revenue and allocations from the federal government, known as the Federation Account Allocation Committee (FAAC) aside from other external loans and grants.
The FAAC, which is disbursed monthly, is allocated based on many factors, such as the 13% derivation, Statutory Allocations, Valued Added Tax (VAT), distribution of exchange gain difference, and the portions to be split between the three tiers of government.
Dataphyte analysis showed that the 36 states got a total of ₦3.92 trillion from the federal government disbursement in 2023. This is higher than ₦3.16 trillion shared in 2022 and ₦2.42 trillion disbursed in 2021.
By this, the total revenue (IGR + FACC) generated by the 36 states in 2023 stood at ₦6.134 trillion.
Meanwhile, a cursory look at the data showed that 34 states relied on federal government allocations to manage their 2023 budgets; assuming the benchmark for revenue reliance is pegged at 50 percent.
The 50 percent reliance means that the states can run half of their fiscal operations from IGR while depending on the government’s allocation for the other half.
Our analysis showed that only Lagos and Ogun had their IGR contribute more than 70 percent to total revenue in 2023. Other states closer to the benchmark are Kaduna and Kwara states.
2023 Fiscal Year: Revenue and Budget
Dataphyte further inspects the 2023 budget of the 36 states to check how much of the total revenue generated could sufficiently fund the states’ approved budget. Nigeria’s 36 states (except the FCT) approved ₦11 trillion in the 2023 fiscal year.
When the total revenue is placed side by side with the budget of the states, at a benchmark of 56 percent revenue to allocation, only 17 states can conveniently fund their budget with revenue generated within the year. Of this number of states, Rivers, Delta, Ekiti, and Ebonyi would revenue for 2023 would fund more than 70 percent of their budget.
Further analysis indicated that Ogun and Kaduna, which ranked among the top states in terms of IGR in 2023, had budget allocations that could only cover about 40 percent of their revenue needs.
This situation indicates that more states may rely on external or domestic loans to fund their budgets, leading to increased debt for those states.
As it stands, Nigeria’s public debt stock, which includes external and domestic debt, stood at ₦121.67 trillion in the first quarter of 2024; an increase of 24.99% from ₦97.34 trillion in Q4 2023. The NBS report disclosed that Lagos state recorded the highest domestic debt in Q1 2024 with ₦929.41 billion, followed by Delta with ₦334.90 billion. Meanwhile, Jigawa State recorded the lowest domestic debt with ₦2.07 billion, followed by Ondo with N16.40 billion.
BudgIT, in its 2024 State of States report, recommended that to achieve debt sustainability, states reduce their appetite for accumulating foreign loans amidst exchange rate volatility and shrinking fiscal space to minimise their exposure to unfavourable exchange rates.
It further added that domestic revenue mobilisation should be strengthened to reduce borrowing needs and budget deficits. States should establish robust frameworks for debt transparency and accountability, ensuring that borrowed funds are directed towards high-impact projects with clear economic returns.