World Bank: Only Lagos, Enugu Generate Enough Revenue to Cover Recurrent Costs

Nume Ekeghe

The World Bank has said that only Lagos and Enugu states generated enough internally generated revenue (IGR) to cover their recurrent expenditure in 2025, underscoring the continued dependence of most state governments on federal allocations to meet their day-to-day obligations.

The Bank, in its October 2026 Nigeria Development Update (NDU), titled ‘Beyond the Federal Purse: How Higher Revenues Shaped State Priorities’, noted that although states had recorded significant improvements in revenue collection, their internally generated revenue remained insufficient to finance recurrent spending in most parts of the country.

According to the report, state governments’ IGR covered an average of about 40 per cent of recurrent expenditure between 2021 and 2023, before improving to approximately 50 per cent in 2024 and 2025.

However, Lagos and Enugu were the only states whose internally generated revenue exceeded their recurrent expenditure. In 2025, Lagos generated revenue equivalent to 160 per cent of its recurrent spending, while Enugu recorded a significantly higher ratio of 377 per cent.

The World Bank warned that the inability of most states to finance recurrent expenditure through their own revenue sources remained a significant fiscal risk, particularly if federally collected revenues were to decline.

It states, “Tax administration improvements in many states have also boosted IGRs, contributing to a bigger resource envelope for state governments. In real terms, aggregate state IGR grew by 55 per cent between 2023 and 2025, supported in part by the growing adoption of automation and other digital technology initiatives in revenue administration. Enugu state saw by far the highest growth in its IGR during this period. Its total IGR grew from N25 billion to N209 billion, 732 percent growth in real terms.”

It added that all components of the state’s IGR grew and that the Direct Assessment Tax personal income tax paid by business owners, contractors, landlords and other self-employed individuals grew the most from N280 million to N14.5 billion, almost 4,000 per cent growth in real terms over the two-year period. The state achieved this by aggressively expanding its tax net capturing thousands of previously unregistered self-employed informal businesses, landlords, and contractors into the formal tax structure and implementing deep systemic and digital technology reforms. By automating its revenue collection processes and enforcing cashless payments made directly into the state treasury, the government enhanced collection efficiency, blocked leakages, and phased out unauthorised roadside collectors.

The report noted that several state Internal Revenue Services have increasingly embraced digital technology and data integration to automate revenue collection, improve tax compliance and minimise revenue leakages. It added that the integration of revenue systems with geographic information systems and other government databases had helped states expand their tax base and enhance collection efficiency. Meanwhile, inflation-driven salary increases also contributed to higher Pay-As-You-Earn (PAYE) tax receipts, which remain the largest source of internally generated revenue for most states.

It further stated, “Despite strong IGR growth in 2023–2024, states’ IGRs are insufficient to cover their recurrent expenditure, leaving them fiscally vulnerable. On an aggregate basis, state governments’ IGR covered only about 40 per cent of recurrent costs on average over 2021-2023, although this improved slightly to 50 percent in 2024 to 2025. On an individual basis, the only exceptions were Lagos state and, more recently, Enugu state, for which IGR exceeded recurrent spending.

“In 2025, Lagos State’s IGR was 160 percent of its recurrent expenditure, while Enugu’s was a much higher 377 per cent. The inability of most states to finance recurrent expenditure through own-source revenues remains a key risk for states, as they would be unable to sustain essential service delivery should federally collected revenues suffer a setback, reinforcing the need to strengthen IGRs to improve budget sustainability and resilience.”