State governments across Nigeria are entering the 2026 fiscal year with expansive spending plans amid weak internally generated revenue (IGR), forcing many to rely heavily on allocations from the Federation Accounts Allocation Committee (FAAC), loans, grants and other non-recurring revenue sources to finance their budgets.

An analysis of appropriation bills and approved estimates of several states indicates that only a few can fund a significant portion of their expenditure from IGR, raising concerns about the sustainability of capital projects and long-term fiscal health.

Findings show that most states remain fiscally dependent on the Federal Government, with FAAC allocations emerging as the largest and most predictable revenue source, complemented by value-added tax (VAT) distributions and, in oil-producing states, derivation proceeds.

Lagos State, Nigeria’s commercial hub, has proposed a N4.237 trillion budget for 2026, the largest subnational budget to date.

Governor Babajide Sanwo-Olu said the budget, anchored on the administration’s T.H.E.M.E.S.+ development agenda, would be funded through N3.12 trillion in IGR and federal transfers, with the balance sourced from bonds and loans. Despite its strong revenue base, Lagos still depends on debt instruments to close funding gaps.

Abia State faces tighter fiscal constraints. Governor Alex Otti presented a N1.016 trillion budget, with N811.8 billion, representing 80 per cent, earmarked for capital expenditure, and N204.4 billion, or 20 per cent, allocated to recurrent spending.

Projected revenues include N83.2 billion from FAAC, N67.1 billion from VAT, N26.5 billion from grants and aid, and N168 billion from other federal revenue channels, amounting to N607.2 billion. This leaves a deficit of about N409 billion, equivalent to roughly 40 per cent of the budget, to be covered through federal inflows and borrowing.

In Ogun State, the N1.669 trillion “Budget of Sustainable Legacy” projects N509.88 billion from IGR, N554.81 billion from federal transfers, and N518.9 billion from capital receipts, including internal and external loans and grants.

Although the budget appears balanced on paper, more than 30 per cent of the funding is derived from non-recurring sources.

Enugu State approved a N1.62 trillion budget for 2026, representing a 66.5 per cent increase over the 2025 figure. Capital expenditure stands at N1.296 trillion, while recurrent spending is N321.3 billion.

Revenue projections include N870 billion from IGR, N387 billion from federal allocations, and N329 billion from capital receipts, indicating continued reliance on external financing.

Osun State’s N723.45 billion budget comprises projected recurrent revenue of N421.25 billion, capital receipts of N286.01 billion, and an opening balance of N16.19 billion. Analysts note that a substantial share of the funding is uncertain, as it depends largely on capital receipts.

Oil-producing Delta State plans to implement a N1.664 trillion budget, allocating N1.165 trillion to capital projects and N499 billion to recurrent expenditure. Expected revenue includes N720 billion from statutory allocations and derivation funds, as well as N250 billion from IGR. Despite anticipated gains from fuel subsidy removal, the state remains heavily dependent on oil-linked federal inflows.

Sokoto State’s N758.7 billion “Budget of Socio-Economic Expansion” is projected to draw N389.3 billion from FAAC, N74.5 billion from IGR, and N233.8 billion from grants and development funds, leaving the state largely dependent on federal transfers and donor support.

Edo State’s N939.85 billion budget relies on multiple funding sources, including N160 billion from IGR, N480 billion from FAAC, N153 billion from grants and capital receipts, and N146 billion from public-private partnerships. Observers warn that delays in external funding could affect implementation timelines.

Bayelsa State approved a N1.01 trillion budget, with projected revenues including statutory allocations, VAT, 13 per cent derivation, other FAAC inflows, IGR, grants and domestic loans. Less than 10 per cent of the state’s revenue is expected from IGR, underscoring heavy dependence on oil revenue and borrowing.

Gombe State’s N535.7 billion “Budget of Consolidation” allocates N371.44 billion to capital expenditure and N164.25 billion to recurrent spending, relying significantly on capital receipts and carryover balances.

Kwara State’s N644.004 billion “Consolidation and Sustained Growth” budget is based on macroeconomic assumptions, including an oil price benchmark of 64.85 dollars per barrel, daily production of 1.84 million barrels, an exchange rate of N1,400 to the dollar and GDP growth of 4.68 per cent, making execution sensitive to national economic performance.

Commenting on the trend, the Managing Director of Optimus by Afrinvest, Dr Ayodeji Ebo, warned that heavy reliance on federal transfers, borrowing and volatile revenue sources exposes states to fiscal risks.

“These revenues are largely outside the control of states and make budgets vulnerable to oil price shocks. Sustainable growth requires building productive local economies and broadening tax bases,” Ebo said.

Fiscal expert Aliyu Ilias also expressed concern over the management of FAAC allocations, urging the Federal Government to consider incentive-based frameworks that reward states for improving IGR performance.

According to him, while FAAC allocations are at record levels, they have not consistently translated into improved living standards, stressing the need for fiscal discipline and efficient project execution at subnational levels.

Analysts note that of the 36 states, 34 governors have presented their 2026 budget proposals to their respective Houses of Assembly, while Borno and Rivers states are yet to submit their appropriation bills.

They cautioned that revenue shortfalls could primarily affect capital expenditure, as recurrent obligations such as salaries and debt servicing take priority, emphasising the need for strict adherence to budget cycles and prudent financial management.