Nigeria’s economy expanded by 4.2 per cent in the first half of 2026, while state governments recorded a 93 per cent increase in real revenue, creating more room for infrastructure investment, according to the World Bank.
The figures were contained in the bank’s latest Nigeria Development Update, titled “Beyond the Federal Purse: How Higher Revenues Reshaped State Priorities.”
The report said economic growth improved from 3.9 per cent during the corresponding period of 2025 and 3.5 per cent in 2024.
Services accounted for much of the expansion, with agriculture also making a stronger contribution. The improved performance helped stabilise Nigeria’s poverty rate for the first time since 2019, although high prices continued to weaken households’ purchasing power.
The World Bank said Nigeria had made progress in economic growth, public finances and external stability but warned that sustained reforms and better public services would be necessary to ensure ordinary Nigerians benefit from the gains.
State Revenues Rise 93 Per Cent
According to the report, state governments recorded a 93 per cent increase in real revenue, while their expenditure grew by approximately 92 per cent over the period under review.
The additional resources followed a broader improvement in government finances. Between 2023 and 2025, gross federation revenues increased by 69 per cent in real terms, largely due to exchange-rate reforms, the removal of the petrol subsidy and improved revenue collection.
States benefited from higher statutory allocations as well as refunds, the settlement of longstanding federal obligations, dedicated intervention funds and stronger Value Added Tax collections.
The increased funding allowed state governments to devote more resources to capital projects.
The share of state expenditure allocated to capital spending rose from 46 per cent to 61 per cent, with transport infrastructure recording the largest increase. Spending on housing, agriculture and other investments intended to support economic growth also increased significantly.
Education and Healthcare Receive Smaller Spending Shares
Despite the rise in infrastructure investment, the World Bank highlighted concerns about spending on essential social services.
The report found that expenditure on education, healthcare and social protection grew more slowly than spending on economic infrastructure.
Education’s share of total expenditure declined from 14.9 per cent in 2021 to 12.1 per cent in 2025, while healthcare spending remained broadly unchanged at around seven per cent.
Social protection, however, recorded an increase, with its share of total expenditure rising from 1.4 per cent to 4.4 per cent over the same period.
The findings point to the challenge facing state governments as they balance infrastructure development with the need to improve education, healthcare and support for vulnerable households.
World Bank Urges States to Improve Public Services
World Bank Country Director for Nigeria, Mathew Verghis, said the increase in government revenue presented an important opportunity to improve living conditions and create more employment opportunities.
“The bold macroeconomic reforms have substantially increased fiscal revenues at the state level, providing a unique opportunity to improve infrastructure, education, healthcare, and water services, which are critical to creating more and better jobs,” Verghis said.
He stressed that higher revenue alone would not guarantee better outcomes for Nigerians.
“Strengthening spending efficiency, accountability, and service delivery will be essential to ensuring that public resources improve the lives of Nigerians,” he added.
Middle East Conflict Boosts Oil Earnings but Raises Inflation Concerns
The World Bank also examined how the conflict in the Middle East has affected Nigeria’s economic outlook.
Higher international oil prices boosted export earnings, helping Nigeria’s current account surplus rise to $12 billion, equivalent to 7.1 per cent of GDP, in the first half of 2026.
This represented an increase from $8.6 billion, or 6.7 per cent of GDP, during the same period a year earlier.
The rise in oil prices also increased government revenue. However, the report noted that existing commitments involving forward oil sales and oil-backed financing arrangements limited the benefits to public finances.
Nigeria’s gross external reserves climbed above $54 billion in September, supported largely by foreign portfolio investment inflows. Reforms also helped improve the functioning of the foreign exchange market.
Nevertheless, the higher cost of fuel following the outbreak of the Middle East conflict, combined with seasonal increases in food prices during the lean season, slowed progress in reducing inflation.
Inflation Falls as Growth Outlook Improves
The report noted that headline inflation had declined from 27.6 per cent in January 2025 to 15.2 per cent in December 2025.
The improvement was supported by tight monetary policy and reduced volatility in the exchange rate.
Looking ahead, the World Bank projected average economic growth of 4.4 per cent between 2026 and 2028.
Inflation is expected to ease gradually to approximately 12 per cent by 2028, while poverty is projected to begin declining.
However, the bank stressed that achieving these outcomes would depend on governments sustaining economic reforms, improving the efficiency of public spending, strengthening internally generated revenue and ensuring greater accountability.
It said these measures would be crucial to turning higher government revenues into better public services, more jobs and improved living standards for Nigerians.
Source: World Bank Nigeria Development Update
