Subsidy Removal Lifts State Finances Amid Accountability, Development Concerns

About 20 states borrowed N458 billion in 2025 despite surge in FAAC inflows

BY BUKOLA ARO-LAMBO AND OLUSHOLA BELLO, Lagos

The sharp increase in allocations to states following the removal of the petrol subsidy has begun to ease debt pressures in parts of the country, but economists have raised fresh concerns about weak accountability and the limited impact of the revenue surge on development outcomes.

Latest data indicate that disbursements from the Federation Account Allocation Committee (FAAC) have risen significantly since May 2023, when the federal government scrapped fuel subsidy and unified the foreign exchange market, boosting revenues available to the three tiers of government.

Annual FAAC allocations climbed from N10.14 trillion in 2023 to about N15.12 trillion in 2024, an increase of over 40 per cent. Projections suggest that distributions could exceed N20 trillion in 2025, supported by strong monthly inflows averaging about N1.9 trillion.

The improved revenue profile has strengthened the fiscal position of several states, enabling modest debt reduction after years of aggressive borrowing.

However, the broader fiscal picture remains uneven, with about 20 states reportedly borrowing a combined N458 billion in 2025 despite the surge in FAAC inflows. Analysts describe the situation as a “two-speed” fiscal reality among subnational governments.

Chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said while the revenue gains from recent reforms are evident, the real challenge lies in transparency and accountability at the subnational level.

“One major upside of the current administration’s economic reforms is the significant improvement in public revenue across all tiers of government. This has been particularly remarkable for state and local governments, whose allocations have increased substantially over the last three years.

“However, the critical issue is no longer just revenue growth, but how these resources are managed, disclosed, prioritised and accounted for,” he said.

Yusuf noted that the accountability framework at the state and local government levels remains weak, with limited disclosure of budget details, expenditure patterns, and project implementation reports.

According to him, this opacity weakens public scrutiny and undermines fiscal discipline.

He called for improved transparency, stressing that budget allocations, internally generated revenue, federation account receipts, audit reports, and project updates should be made publicly accessible.

The CPPE boss also emphasised the need for stronger citizen engagement, noting that governance should not be limited to electoral participation alone.

“Citizens must engage their councillors, local government chairmen, state legislators, and governors on budget priorities, project execution, and service delivery. The culture of reducing governance engagement to pre-election ‘empowerment’ gestures must give way to a stronger demand for accountability, performance, and inclusion,” he added.

Also speaking, head of financial institutions ratings at Agusto & Co, Ayokunle Olubunmi, said the surge in FAAC allocations has not translated into commensurate development across states.

“With the removal of subsidy and liberalisation of the naira, we have seen a significant surge in FAAC allocation, but if you look at the level of development in the states, it has not improved when compared to the surge in their revenue,” he said.

Olubunmi questioned the utilisation of the increased allocations, stressing that scrutiny should not be limited to the federal government alone.

“Which leads to the question of what they have been doing with such a huge allocation. Even some states that have derivation funds haven’t been as good. This also means that with the microscope used to examine the federal government, it needs to be extended to the states and even the local governments. We need to hold both accountable,” he said.

Analysts further cautioned that much of the growth in FAAC allocations is driven by exchange rate effects rather than by a significant expansion in real economic output. They warned that sustaining debt reduction will depend on improved internal revenue, efficient spending, and reduced reliance on federal transfers.

They also expressed concern that public spending at the subnational level is often skewed towards urban centres, leaving rural communities underserved and limiting the broader developmental impact of increased revenues.

Nonetheless, the post-subsidy revenue windfall is widely seen as a critical opportunity for states to recalibrate their fiscal strategies, strengthen transparency, and channel resources towards inclusive growth.

EXPLAINER

1. Subsidy Removal Drives Revenue Surge For States

Nigeria’s removal of the petrol subsidy significantly boosted FAAC allocations, improving state revenues and easing debt pressures across several parts of the country.

2. FAAC Allocations Rise, But Gains Uneven Across States

Allocations rose sharply from 2023 to 2024 and may exceed projections, strengthening fiscal capacity but creating uneven benefits among states.

3. Rising Revenues, Persistent Borrowing Signal Fiscal Divide

Despite higher revenues, some states continue to borrow, reflecting a “two-speed” fiscal reality and persistent structural financial weaknesses at the subnational level.

4. Accountability, Concerns Shadow Increased State Funds

Economists highlight weak transparency and accountability, noting that increased funds have not translated into visible or meaningful development outcomes across states.

5. Experts Call For Reforms To Turn Windfall Into Development

Analysts urge better financial management, stronger citizen oversight, and inclusive spending to ensure the revenue windfall drives sustainable and broad-based development.