Nigeria’s decision to remove petrol subsidy has significantly boosted revenues flowing to state governments, easing fiscal pressure in several parts of the country. However, while the increase in monthly allocations has strengthened public finances, economists and policy analysts say the larger inflows have also intensified questions around transparency, spending priorities and the visible impact of the funds on development.
Recent figures show that the rise in allocations from the Federation Account Allocation Committee (FAAC) has become one of the most notable fiscal outcomes of the Federal Government’s economic reforms introduced in 2023.
The removal of fuel subsidy and the unification of the foreign exchange market created a sharp increase in revenue available for distribution among the three tiers of government. Since then, monthly inflows have remained considerably higher than previous levels, giving many state governments greater fiscal breathing space.
FAAC Allocations Record Sharp Growth
Available data indicate that annual FAAC disbursements rose from about N10.14 trillion in 2023 to roughly N15.12 trillion in 2024. This represents an increase of more than 40 per cent within a year.
Current projections suggest that total allocations could exceed N20 trillion in 2025, supported by average monthly inflows estimated at about N1.9 trillion.
The improved revenue environment has strengthened the financial position of several states. For many subnational governments that had spent years relying heavily on borrowing to fund recurrent expenditure and capital projects, the higher allocations have provided room for modest debt reduction.
In several states, officials have pointed to the post-subsidy windfall as a factor that has improved liquidity, reduced short-term fiscal pressure and enhanced the ability to meet obligations.
Despite the stronger inflow of funds, the broader fiscal picture remains mixed.
Reports indicate that about 20 states collectively borrowed N458 billion in 2025, even as FAAC allocations continued to rise.
This has led analysts to describe the current situation as a “two-speed” fiscal reality among state governments.
While some states appear to be using the additional resources to stabilise their finances and reduce debt exposure, others continue to rely on fresh borrowing. This trend suggests that higher allocations alone may not automatically resolve underlying structural fiscal weaknesses.
Experts say the disparity reflects differences in financial management, internal revenue generation, spending efficiency and the overall fiscal discipline of state administrations.
Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the positive revenue impact of recent economic reforms is clear, but stressed that the focus must now shift from revenue growth to how those funds are managed.
According to him, one of the major gains of the current administration’s reforms is the substantial improvement in public revenue across all levels of government, especially for state and local governments whose allocations have increased significantly over the past three years.
He noted, however, that the real concern is no longer the volume of funds received, but the level of transparency surrounding their use.
Yusuf argued that accountability frameworks at the state and local government levels remain weak. In many cases, there is limited public access to budget details, expenditure breakdowns, project implementation reports and audit findings.
He warned that such opacity weakens public scrutiny and undermines fiscal discipline.
According to him, there is an urgent need for governments at the subnational level to make information on budget allocations, internally generated revenue, federation account receipts, audit reports and project execution publicly available.
Citizens Must Demand Accountability
Beyond government institutions, Yusuf also stressed the importance of stronger citizen engagement in governance.
He said public participation should not begin and end with elections, adding that citizens must actively engage with elected officials on issues of budget priorities, project implementation and service delivery.
He urged Nigerians to move away from the culture where political engagement is often reduced to pre-election empowerment gestures.
Instead, he said citizens should consistently demand accountability, measurable performance and inclusive governance from councillors, local government chairmen, state legislators and governors.
Development Gains Yet to Match Revenue Growth
Also speaking on the issue, Head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, said the increase in FAAC allocations has not translated into comparable development outcomes across many states.
According to him, while the removal of subsidy and the liberalisation of the naira have clearly expanded state revenues, the visible level of development has not improved in proportion to the rise in allocations.
He questioned how many states have utilised the additional resources, noting that scrutiny should not be directed at the Federal Government alone.
Olubunmi argued that the same level of public examination applied to federal authorities should also extend to state and local governments.
He added that even some states that benefit from derivation funds have not demonstrated sufficiently strong development outcomes.
His remarks reflect a growing concern among economic observers that rising revenues have not yet produced corresponding improvements in infrastructure, public services or broader economic welfare.
Revenue Growth Driven by Exchange Rate Effects
Analysts also cautioned that a significant portion of the growth in FAAC allocations is linked to exchange rate adjustments rather than a major expansion in real economic output.
In practical terms, this means that while nominal revenues have increased, the underlying productive capacity of the economy may not have improved at the same pace.
This distinction is important because it raises questions about long-term sustainability.
Experts say meaningful and durable debt reduction will depend not only on higher federal transfers but also on stronger internally generated revenue, efficient public spending and a reduced dependence on centrally distributed allocations.
Rural Communities Still Largely Underserved
Another concern raised by analysts is the pattern of public expenditure at the subnational level.
In many states, spending is often concentrated in urban centres, while rural communities continue to face gaps in infrastructure, healthcare, education and other essential services.
This uneven distribution of public resources limits the wider developmental impact of increased revenues.
Economists warn that unless spending becomes more inclusive and targeted toward underserved communities, the benefits of the current revenue windfall may remain narrow and unevenly distributed.
A Critical Opportunity for Fiscal Reform
Despite the concerns, economists agree that the post-subsidy increase in state revenues presents an important opportunity.
For many state governments, the current environment offers a chance to reset fiscal priorities, improve transparency, strengthen institutional accountability and direct public resources toward long-term economic development.
If properly managed, the additional funds could help states reduce debt burdens, improve service delivery, expand infrastructure and stimulate more inclusive growth.
The challenge, however, lies in ensuring that higher revenues are matched by stronger governance standards and measurable development outcomes.
Why It Matters
Nigeria’s subsidy removal has undeniably changed the fiscal landscape for state governments.
The increase in FAAC inflows has created more financial room for subnational administrations and eased immediate debt pressure in several parts of the country.
Yet higher revenues alone are not enough.
The real test will be whether state governments can convert the windfall into tangible development, stronger institutions and improved living conditions for citizens.
For now, economists say one message is becoming increasingly clear: more money must also mean greater accountability.
