By BUKOLA ARO-LAMBO and DEBORAH BELLO, Lagos Despite a sharp increase in revenues available to Nigeria’s state governments following the removal of the petrol subsidy and other economic reforms, 25 states recorded fiscal deficits in 2025, raising fresh concerns over the sustainability of subnational finances. A new report by BudgIT, titled “What Has Changed Across […]
By BUKOLA ARO-LAMBO and DEBORAH BELLO, Lagos
Despite a sharp increase in revenues available to Nigeria’s state governments following the removal of the petrol subsidy and other economic reforms, 25 states recorded fiscal deficits in 2025, raising fresh concerns over the sustainability of subnational finances. A new report by BudgIT, titled “What Has Changed Across Nigeria’s States? An Analysis of State Finances in the Post Subsidy Years,” showed that only 10 of the 36 states recorded fiscal surpluses before borrowing in 2025, while 25 operated with financing gaps.
It said, “Our findings show that in 2025, 10 of the 36 states (excluding Akwa Ibom and Rivers State,
where comparable data were unavailable) recorded fiscal surpluses before borrowing, while 25 states
recorded fiscal deficits.”
It said the situation represented a deterioration from 2022, when 15 states recorded surpluses and 19 were in deficit.
“Although available resources expanded substantially over the review period, expenditure growth outpaced resource growth in many states, resulting in a larger number of states entering deficit positions before accessing debt financing,” the report stated.
BudgIT said aggregate available resources — comprising opening balances, FAAC allocations and internally generated revenue (IGR) — rose from N5.43 trillion in 2022 to N18.09 trillion in 2025, an increase of N12.67 trillion and a compound annual growth rate of 49.40 per cent.
The expansion was attributed largely to increased statutory allocations following fiscal reforms, improved revenue mobilisation and broader macroeconomic developments that expanded distributable revenues.
However, state expenditure also rose substantially. Aggregate actual expenditure increased from N6.22 trillion in 2022 to N17.88 trillion in 2025, representing an increase of N11.66 trillion and a compound annual growth rate of 42.20 per cent.
BudgIT attributed the expenditure growth to rising personnel costs following implementation of the new national minimum wage, inflationary pressures and increased spending on infrastructure and other development priorities.
Oyo Records Largest Deficit
Oyo State recorded the largest fiscal deficit before borrowing in 2025 at N196.98 billion, followed by Lagos at N183.93 billion, Borno at N138.77 billion, Bauchi at N123.74 billion, Yobe at N112.70 billion and Niger at N105.18 billion.
Ogun recorded a deficit of N86.70 billion, followed by Jigawa at N83.81 billion and Katsina at N81.22 billion.
The report said the financing gaps indicated that “available resources alone were insufficient to finance planned expenditure.”
At the other end of the scale, Delta State recorded the largest fiscal surplus before borrowing at N1.05 trillion, followed by Ondo with N187.71 billion and Bayelsa with N125.09 billion.
Sokoto, Plateau, Taraba, Anambra, Enugu, Kano, Osun, Cross River and Kwara also recorded positive fiscal positions.
FAAC Drives Revenue Growth
Speaking on the report, Co-founder and Director of BudgIT, Oluseun Onigbinde, said the increase in federal transfers was driven partly by naira depreciation, higher oil production and favourable oil prices.
“Most of the growth has come from both ways. One is that we have a devalued naira. The other thing you also see happened has been the fact that oil production has increased,” he said.
Onigbinde said FAAC had grown faster than IGR during the period, indicating that states were receiving more from federal transfers than they were generating internally.
He, however, acknowledged that states deserved credit for paying greater attention to IGR, while cautioning that the sources of such revenue must be properly classified.
He said states should generate enough internally to cover their operating costs, particularly because oil prices and federal revenues could fluctuate. He also questioned the sustainability of some sharp increases in IGR reported by states, including Enugu.
State Borrowing Rises
The report further showed that increased revenue did not translate into reduced borrowing. Aggregate state borrowing rose from N1.24 trillion in 2022 to N2.05 trillion in 2025, an increase of N812.65 billion and a compound annual growth rate of 18.31 per cent.
BudgIT said borrowing was increasingly being used for purposes beyond simply filling budgetary financing gaps.
“Rather than serving solely as a mechanism for addressing financing shortfalls, borrowing increasingly appears to have complemented internally generated resources and statutory transfers in financing capital projects, supporting long-term infrastructure investments, refinancing existing obligations, and managing liquidity requirements,” the report stated.
The report also found that borrowing was not necessarily determined by the size of a state’s fiscal deficit.
Lagos, for instance, recorded a deficit of N183.93 billion but borrowed N363.24 billion — almost twice its financing gap — making it the largest state borrower in 2025.
Oyo, which recorded the largest deficit at N196.98 billion, borrowed N219.97 billion, while Borno borrowed N118.51 billion against a deficit of N138.77 billion.
Bauchi borrowed N111.19 billion against a N123.74 billion deficit, while Niger accessed N95.79 billion against a financing gap of N105.18 billion.
In contrast, Ogun recorded an N86.70 billion deficit but borrowed only N21.21 billion. Kaduna, which had a relatively modest deficit of N15.69 billion, borrowed N82.53 billion.
According to BudgIT, the pattern suggests that “borrowing decisions reflected broader fiscal and investment strategies rather than simply balancing annual budgets.”
