The Federal Government deducted N800bn from state allocations in 2024 to service foreign debts and other contractual obligations. This was revealed in the latest FAAC Quarterly Review published by the Nigeria Extractive Industries Transparency Initiative (NEITI). The report highlights the financial strain on states, despite record-high disbursements from the Federation Accounts Allocation Committee (FAAC).
Record FAAC Allocations Boosted by Fiscal Reforms
The FAAC allocations for 2024 totaled N15.26tn, a 43% increase from the previous year. This surge was attributed to major fiscal reforms, including the removal of fuel subsidies and exchange rate adjustments. These changes led to a significant increase in oil revenue remittances. The breakdown of disbursements showed that the Federal Government received N4.95tn, state governments were allocated N5.81tn, and local governments got N3.77tn.
State Governments Benefit from Higher Allocations but Face Debt Deductions
State governments saw the highest percentage increase in allocations, with a 62% rise from N3.58tn in 2023 to N5.81tn in 2024. Despite these higher allocations, the states faced significant deductions, with N800bn removed at source for foreign debt servicing and other obligations. This has added pressure to states, especially those with lower revenues.
Lagos State Leads in Debt Deductions
Lagos State recorded the highest debt deduction of N164.7bn, accounting for over 20% of the total deductions. Kaduna State followed with N51.2bn, while Rivers and Bauchi recorded N38.6bn and N37.2bn, respectively. The report highlighted concerns about states with high debt burdens, noting that these states also ranked lower in FAAC allocations, raising issues about their fiscal sustainability.
Concerns About Debt-to-Revenue Ratios and Fiscal Health
The review raised concerns about states with high debt-to-revenue ratios and their ability to fund critical projects. The report noted that many of these states are among the lower-ranking recipients of FAAC allocations. The high debt deductions further strained their finances, making it harder for them to address essential public services and investments.
NEITI Warns of Economic Challenges Despite Increased Revenue
Dr. Ogbonnaya Orji, Executive Secretary of NEITI, explained that the sharp rise in FAAC disbursements was largely driven by fiscal reforms, particularly the removal of fuel subsidies and adjustments to the foreign exchange policy. These policies resulted in a more than 400% increase in naira-denominated mineral revenues. However, Orji cautioned that while these measures boosted revenue, they also introduced challenges such as inflationary pressures, rising debt servicing costs, and fiscal uncertainty for states reliant on oil revenue.
Top and Bottom FAAC Allocations by State
Lagos received the highest FAAC allocation in 2024, totaling N531.1bn, followed by Delta with N450.4bn and Rivers with N349.9bn. On the lower end, Nasarawa, Ebonyi, and Ekiti received the least allocations of N108.3bn, N110bn, and N111.9bn, respectively.
The six highest-receiving states—Lagos, Rivers, Bayelsa, Akwa Ibom, Delta, and Kano—accounted for 33% of total state allocations. Meanwhile, the six lowest-receiving states—Yobe, Gombe, Kwara, Ekiti, Ebonyi, and Nasarawa—made up only 11.5%.
Recommendations for Sustainable Revenue Growth
NEITI recommended urgent measures to mitigate economic risks and ensure sustained revenue growth. The agency called for exchange rate stability to curb inflation, conservative crude oil price and production estimates to prevent budget shortfalls, and greater diversification of revenue sources beyond oil and gas. Additionally, NEITI urged all levels of government to strengthen internal revenue generation and improve fiscal transparency in line with Open Government Partnership and Extractive Industries Transparency Initiative commitments.
