Nigeria’s sub-national governments are geared towards a significant fiscal expansion in 2026, with combined state budgets estimated at about N36.98 trillion, a 45 per cent increase from the previous year and more than triple the level recorded three years ago. The rise reflects higher federal allocations linked to currency reforms, gradual improvements in state revenue mobilisation and a continued policy focus on infrastructure investment as a catalyst for growth.
Despite rising budget allocations, analysts caution that Nigeria’s state governments face mounting challenges in translating spending plans into measurable outcomes. Economists and fiscal transparency advocates say the issue is increasingly one of execution rather than funding, with budgets expanding faster than implementation capacity. The disconnect is evident in persistent infrastructure deficits, elevated poverty levels and limited improvement in public service delivery.
State government spending in Nigeria is expanding at an unprecedented rate. According to research by Promad Foundation, a civic-tech organisation empowering state and non-state actors and shaping development in Africa, total appropriations increased from N11.17 trillion in 2023 to N16.15 trillion in 2024, before accelerating to N25.58 trillion in 2025 and nearly N37 trillion for 2026. Promad’s 2026 subnational budget outlook also notes that 12 states now have budgets exceeding N1 trillion, highlighting widening fiscal disparities across the federation.
Lagos, the commercial hub, remains dominant with a budget exceeding N4.4 trillion. Kano has entered the trillion-naira bracket, while oil-rich states such as Delta, Akwa Ibom and Bayelsa maintain large fiscal envelopes supported by hydrocarbon-linked revenues.
Subnational spending in Nigeria remains uneven. The south-west contributes roughly one-quarter of total state budgets, reflecting stronger economic fundamentals, whereas the conflict-hit north-east accounts for about 12 per cent despite pressing development needs.
This uneven fiscal geography reinforces long-standing structural imbalances in Nigeria’s federal system. Wealthier states can leverage internally generated revenue and attract investment, while poorer regions remain heavily dependent on federal transfers, often with limited administrative capacity to deploy funds efficiently.
Despite rising expenditure plans, Nigeria continues to face severe infrastructure deficits estimated in the hundreds of billions of dollars over coming decades. Roads, power supply, healthcare infrastructure, public transport systems and educational facilities remain under strain from population growth exceeding 200 million people.
Promad Foundation argues that the key question is no longer how large state budgets are, but how effectively they translate into tangible outcomes.
“The real test of these budgets will not be their size but their impact on citizens’ daily lives,” the organisation noted in its recent assessment, highlighting persistent concerns about accountability, transparency and alignment with community priorities.
This sentiment mirrors rising public scepticism about government spending. Citizens are increasingly asking for clear evidence that public funds translate into tangible improvements such as functioning hospitals, reliable transport systems, safer infrastructure and job creation, rather than simply higher administrative costs.
Economists identify several structural factors limiting the effective implementation of state budgets, including administrative capacity constraints, volatile revenue assumptions, rising debt servicing pressures and governance disruptions. Many state governments still lack strong project management systems, procurement oversight frameworks and monitoring mechanisms, which often results in delays, cost overruns or incomplete projects, while infrastructure initiatives announced with political visibility sometimes stall due to funding interruptions, contractor disputes or bureaucratic bottlenecks, reducing their developmental impact.
At the same time, state fiscal plans frequently rely on optimistic revenue projections tied to federal allocations, commodity price movements or expected gains in internally generated revenue that do not always materialise, leading to capital projects being scaled back or deferred and leaving partially completed infrastructure across many states.
Increasing reliance on borrowing through domestic debt, bond issuances and multilateral financing has also raised debt servicing obligations, narrowing fiscal space for actual project execution and raising concerns among analysts about the risk of debt-driven budgets that do not necessarily translate into development outcomes.
In addition, political instability can disrupt fiscal operations, as seen in situations where governance disputes delay budget approvals and implementation, underscoring how institutional and political challenges can directly constrain fiscal execution at the sub-national level.
Nigeria faces an estimated annual infrastructure funding gap of roughly $100 billion, according to industry projections. This gap underscores the scale of investment required to sustain economic growth and support a rapidly expanding population.
State governments play a critical role in bridging this deficit, particularly in transport networks, urban development, water systems and local energy infrastructure.
Yet the reliance on borrowing to finance infrastructure raises sustainability concerns. Currency volatility, interest rate pressures and fiscal consolidation at the federal level could constrain future financing options.
This makes efficient project execution even more critical: poorly executed infrastructure investments not only waste resources but also weaken investor confidence.
IMF perspective: sub-nationals hold the key to poverty reduction
Christian Ebeke, the International Monetary Fund’s resident representative in Nigeria, has stressed that state governments are central to achieving inclusive growth and poverty reduction.
Given Nigeria’s federal structure, most public services affecting citizens ,education, primary healthcare, local infrastructure and agricultural support, are delivered at the sub-national level. Effective fiscal management by states therefore has an outsized impact on economic development.
However, the IMF and other development institutions increasingly emphasise not just spending levels but spending quality. Efficient public investment management, transparent procurement processes and credible fiscal reporting are considered critical to converting budgets into measurable welfare gains. Without such reforms, higher spending may not translate into improved human development indicators.
A striking feature of the 2026 fiscal cycle is the emphasis on capital expenditure. Several states have allocated more than 70 or even 80 per cent of budgets to infrastructure and development projects. States such as Imo, Enugu and Ebonyi have prioritised roads, hospitals, schools and public utilities in attempts to accelerate regional development. 15 states collectively earmarked about N10.7 trillion for capital projects targeting infrastructure deficits.
In principle, capital-heavy budgets support long-term growth. Infrastructure investment can boost productivity, attract private capital and generate employment. Yet execution challenges raise doubts about whether these allocations will achieve intended outcomes. Historical data reflects actual capital spending often falls significantly below budgeted amounts due to cash flow constraints, administrative bottlenecks or shifting political priorities.
Financial analysts, including research and information services firm Proshare, argue that states must move beyond traditional budgeting approaches if they are to convert fiscal expansion into sustainable development.
One proposed strategy involves leveraging capital markets and state-owned assets. Rather than relying solely on federal transfers or bank borrowing, states could monetise underutilised assets through concessions, public-private partnerships or market listings.
Examples include redevelopment of government-owned real estate, optimisation of state liaison offices in major commercial centres, and structured investment vehicles to attract institutional capital.
Such approaches, according to Proshare, could diversify revenue sources, reduce fiscal pressure and potentially improve project execution by introducing private sector discipline. However, success depends on transparent asset registers, credible regulatory frameworks and investor confidence, areas where progress remains uneven across Nigeria’s states.
