At least 26 Nigerian states were unable to generate enough Internally Generated Revenue (IGR) to cover their personnel expenditure in 2025, highlighting the continued dependence of many subnational governments on allocations from the Federation Account Allocation Committee (FAAC).
The development comes despite a substantial increase in revenue available to state governments following major economic reforms, including the removal of the petrol subsidy and changes in the foreign exchange market.
An analysis of state finances contained in a 2026 report by BudgIT showed that only eight of the 34 states examined generated more IGR than they spent on personnel during the year.
The states that recorded sufficient internally generated revenue to cover their personnel bills were Lagos, Enugu, Ogun, Delta, Kaduna, Kwara, Abia and Anambra. Akwa Ibom and Rivers were excluded from the analysis because of incomplete or unavailable implementation data.
26 States Face Revenue-Wage Gap
The financial gap among the 26 states remains significant.
Collectively, the states generated approximately N1.16 trillion in IGR in 2025, while personnel expenditure stood at about N1.91 trillion. This created a gap of roughly N747 billion between what the states generated internally and what they spent on personnel.
The figures underline a major challenge facing state government finances in Nigeria: increased revenue does not necessarily translate into greater fiscal independence.
It is important to note that states are not required to finance salaries exclusively from IGR. Statutory allocations from the Federation Account are a legitimate source of government revenue.
However, the comparison provides an indication of how vulnerable many states could be if federal transfers were significantly reduced.
FAAC Revenue Has Grown Faster Than IGR
The situation becomes more significant when viewed against the sharp rise in FAAC allocations to Nigerian states.
According to the analysis, aggregate FAAC receipts increased from approximately N3.43 trillion in 2022 to N11.38 trillion in 2025, representing growth of more than 232 per cent.
During the same period, aggregate IGR increased from about N1.57 trillion to N4.15 trillion, representing growth of approximately 165 per cent.
In other words, states generated substantially more revenue internally, but federal transfers expanded at a faster rate.
As a result, FAAC accounted for about 73.3 per cent of aggregate state revenue in 2025, compared with 68.7 per cent in 2022.
The share of IGR, meanwhile, fell from 31.4 per cent to 26.7 per cent over the same period.
This trend raises questions about the long-term sustainability of Nigeria's state finances and the ability of state governments to develop independent revenue bases.
Yobe, Oyo, Jigawa Record Major Gaps
The disparity between state IGR and personnel expenditure was particularly striking in some parts of the country.
Yobe State generated approximately N15.42 billion in IGR in 2025 but spent about N76.34 billion on personnel, creating a shortfall of roughly N60.91 billion.
Taraba generated N17.89 billion internally while spending N55.60 billion on personnel. Sokoto recorded IGR of N20.58 billion compared with personnel expenditure of N58.65 billion.
Jigawa's situation was also notable. The state generated approximately N35.27 billion in IGR but spent N92.66 billion on personnel, leaving a gap of about N57.39 billion.
In absolute terms, Oyo State recorded the largest personnel-IGR gap among the 26 states. Its IGR stood at about N102.52 billion, while personnel expenditure reached N170.04 billion, producing a difference of approximately N67.51 billion.
Ondo recorded a gap of about N53.94 billion, while Kogi's personnel expenditure exceeded its IGR by approximately N52.70 billion. Bayelsa also recorded a gap of about N46.60 billion.
Lagos Remains the Major Outlier
The data also reveals the enormous disparity in revenue-generating capacity among Nigerian states.
Lagos State remains by far the strongest performer in terms of IGR.
The state generated approximately N1.85 trillion in internally generated revenue in 2025, compared with N656.35 billion in 2022.
Its 2025 IGR alone represented about 44 per cent of the N4.15 trillion generated by the 34 states covered by the analysis.
Lagos spent about N333.67 billion on personnel, meaning its internally generated revenue was more than five times its personnel expenditure.
Other states that recorded stronger IGR performance included Enugu, which generated approximately N406.77 billion against personnel expenditure of N56.40 billion, and Ogun, which recorded N237.65 billion in IGR compared with N151.27 billion in personnel costs.
Delta, Kaduna, Kwara, Abia and Anambra also generated enough internally to cover their respective personnel bills.
Excluding Lagos Changes the Picture
Lagos' enormous revenue base significantly influences the aggregate picture of state revenue in Nigeria.
When Lagos is removed from the calculation, the remaining 33 states generated approximately N2.30 trillion in IGR in 2025.
Their combined personnel expenditure, however, was about N2.56 trillion.
That means personnel costs exceeded internally generated revenue by approximately N254 billion, demonstrating that Lagos' exceptional performance can mask the weaker fiscal position of many other states.
The figures suggest that Nigeria's state-level revenue challenge is not simply about the amount of money available to governments. It is also about the uneven distribution of economic activity and the ability of individual states to build sustainable tax and non-tax revenue systems.
Some States Have Improved Their IGR Performance
Despite the concerns, the data also contains some positive developments.
In 2022, 28 of the 34 states covered by the report had personnel expenditure higher than IGR.
By 2025, that number had fallen to 26.
Abia, Delta, Enugu and Kwara moved from having insufficient IGR to cover personnel expenditure in 2022 to becoming states where internally generated revenue exceeded personnel costs by 2025.
However, the trend was reversed in Ebonyi and Jigawa, where the relationship between IGR and personnel expenditure deteriorated.
Jigawa's position is particularly concerning because its IGR fell from N59.40 billion in 2022 to N35.27 billion in 2025, while personnel expenditure increased from N52.37 billion to N92.66 billion.
Revenue Growth Must Translate Into Development
BudgIT's wider assessment shows that Nigerian states had significantly more resources available to them in 2025 than they did three years earlier.
Aggregate state revenue rose from about N4.84 trillion in 2022 to N15.53 trillion in 2025, while expenditure increased from N6.22 trillion to N17.88 trillion.
The central question, therefore, is how effectively states are converting increased revenues into infrastructure, education, healthcare, employment and other services.
Higher FAAC allocations can provide states with fiscal breathing room, but long-term development requires stronger economic foundations.
States need to expand their tax bases without imposing excessive burdens on citizens, improve the ease of doing business, attract private-sector investment, formalise economic activities and develop sectors capable of generating sustainable revenue.
Calls for Stronger Fiscal Federalism
The growing dependence on federal allocations has also renewed calls for fiscal federalism in Nigeria.
The broader argument is that states should not simply wait for monthly FAAC disbursements. Instead, governments should create conditions that encourage businesses to invest, expand employment and increase economic activity.
For many states, increasing IGR will therefore require more than aggressive taxation. It will require expanding the productive economy from which sustainable revenue can be generated.
The Road Ahead for Nigerian States
The latest figures present a mixed picture of Nigeria's state finances.
On one hand, state governments are receiving considerably more money than they did before the recent economic reforms. On the other hand, the increased resources have not eliminated dependence on federal transfers.
The fact that 26 states could not cover personnel costs from IGR demonstrates the depth of the fiscal challenge.
For state governments, the priority should be to build reliable and diversified revenue streams while controlling recurrent expenditure and protecting investment in infrastructure and human capital.
The objective should not necessarily be to eliminate FAAC dependence overnight. Rather, states need to progressively strengthen their own economies so that federal allocations become a supplement to development rather than the foundation upon which basic government operations depend.
Ultimately, the sustainability of Nigeria's federal system will depend on whether states can move from allocation-dependent government to production-driven economies.
The latest figures provide another warning that increased public revenue is meaningful only when it translates into stronger institutions, better services, productive investment and improved living standards for citizens.
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Conclusion
The inability of 26 Nigerian states to cover their personnel costs from internally generated revenue highlights the continuing fiscal challenges confronting subnational governments.
While FAAC allocations have provided states with substantially greater resources, the figures underline the importance of building stronger local economies and sustainable revenue systems.
For Nigeria's states, the long-term goal should be to increase productive economic activity, attract investment, create jobs and strengthen IGR without placing excessive pressure on citizens and businesses.
Premium News Naija will continue to provide updates and analysis on Nigeria's economy, government revenue, FAAC allocations, IGR and public finance.
Source: Analysis based on the referenced PUNCH report and BudgIT's state-finance data.
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