Nigeria’s state governments have significantly increased spending on infrastructure and other capital projects following a sharp rise in public revenue, with total state expenditure climbing by more than 182 per cent between 2021 and 2025.
The World Bank disclosed this in its October 2026 Nigeria Development Update, which examined how increased government revenue has changed spending priorities across the country.
According to the report, aggregate state expenditure rose from about N3.4 trillion in 2021 to N9.6 trillion in 2025. The increase followed higher allocations from the Federation Account, stronger Value Added Tax (VAT) collections and improvements in internally generated revenue.
State revenues rise by 93%
The World Bank said aggregate state revenue increased by approximately 93 per cent in real terms between 2023 and 2025, while expenditure rose by 92 per cent.
The increase was partly driven by the removal of the petrol subsidy, exchange-rate reforms and improved revenue administration. States also benefited from refunds, the settlement of outstanding federal obligations and additional intervention funds.
Gross federation revenue increased by 69 per cent in real terms over the period, with states recording a 130 per cent increase in their share. Local governments recorded a 101 per cent increase, while the federal government’s share rose by 41 per cent.
The report noted that internally generated revenue also improved, rising by 55 per cent in real terms between 2023 and 2025. Digital collection systems, automated processes and broader taxpayer registration contributed to the increase.
Infrastructure takes larger share of spending
The increase in available funds enabled states to expand capital expenditure and direct more resources towards economic infrastructure.
Capital spending rose by 151 per cent in real terms between 2023 and 2025, increasing its share of total state expenditure from 46 per cent to 61 per cent.
Transport infrastructure recorded the largest increase, with spending rising from about N100 billion in 2021 to N2.5 trillion in 2025. Housing, agriculture and other growth-related investments also received additional funding.
However, the World Bank warned that spending on human development has not kept pace with the expansion in infrastructure investment.
Education’s share of total state expenditure fell from 14.9 per cent in 2021 to 12.1 per cent in 2025. Health spending remained broadly stable at around seven per cent, while social protection’s share increased from 1.4 per cent to 4.4 per cent.
States remain dependent on federal allocations
Despite improvements in internally generated revenue, many states continue to depend heavily on transfers from the Federation Account to finance their budgets.
The World Bank found that federation transfers accounted for an average of 65 per cent of aggregate state revenue between 2021 and 2025. Excluding Lagos, the figure averaged 72 per cent.
Internally generated revenue covered only about half of states’ recurrent expenditure in 2024 and 2025, highlighting their vulnerability to any decline in federal revenue.
Lagos and Enugu stood out for their stronger revenue positions. In 2025, Lagos’s internally generated revenue was equivalent to 160 per cent of its recurrent expenditure, while Enugu’s reached 377 per cent.
World Bank calls for better public spending
The World Bank said the increase in public revenue presents an opportunity for states to improve infrastructure, education, healthcare, water services and employment opportunities.
However, it stressed that stronger accountability, spending efficiency and service delivery would be necessary to ensure that additional resources translate into better living conditions.
The bank projected that Nigeria’s economy would grow by an average of 4.4 per cent between 2026 and 2028, while inflation could ease to around 12 per cent by 2028 if reforms continue and public services improve.
