Nigeria’s public finances are expanding rapidly at both federal and state levels. The Federal Government plans to spend N58.18 trillion in 2026, nearly four times the N14.63 trillion spent in 2022. Debt servicing is projected at N15.52 trillion, up from N3.76 trillion in 2022. At the subnational level, states are receiving record allocations from the Federation Account following subsidy removal and exchange-rate reforms.
The numbers suggest scale. The outcomes suggest strain.
Between 2022 and 2025, cumulative federal deficits reached roughly N39.3 trillion, according to BudgIT. In 2023, debt service stood at N7.66 trillion, about 64.5 percent of total revenue of N11.88 trillion. A large share of income was committed to servicing past obligations before new investment could be financed.
Despite rising expenditure across all tiers of government, economic performance remains fragile. Roughly 140 million Nigerians live on less than $3 a day. Per capita income has fallen to $835. Nigeria ranks among the worst-performing countries in the 2025 Global Hunger Index with a score of 32.8. The divergence between higher fiscal flows and weak welfare outcomes points not to insufficient spending, but to structural misalignment.
State revenue windfall, weak delivery
The imbalance is not confined to the federal government. In 2024, FAAC allocations to states reached historic levels. Delta received N1.19 trillion, Akwa Ibom N1.01 trillion, and Bayelsa N794.43 billion. Lagos received N670.99 billion, Kano N381.74 billion, and Kaduna N340.45 billion. Even smaller states such as Ebonyi and Kebbi crossed the N100 billion mark.
Across geopolitical zones, inflows surged. North-East states facing security pressures still received substantial allocations: Borno N338.25 billion, Gombe N286.22 billion, and Yobe N216.3 billion.
Yet infrastructure gaps persist. Project completion rates remain uneven. Capital expenditure often struggles to translate into durable assets.
As one analyst notes, when projects are delayed or abandoned, the intended economic benefits are postponed. Fiscal outlays lose their multiplier effect. Roads that remain unfinished delay commerce. Clinics that remain incomplete defer healthcare. Schools that stall postpone human capital formation.
Higher allocations alone do not guarantee development. Absorptive capacity, planning discipline and accountability determine whether fiscal expansion becomes productive investment or administrative inflation.
Muda Yusuf, chief executive of the Centre for the Promotion of Private Enterprise, argues that the core weakness lies in revenue quality and expenditure discipline. “It is not just about how much the government earns,” he says. “It is about the sustainability of that revenue and the productivity of spending. When recurrent expenditure expands faster than capital formation, the growth impact weakens.”
The fiscal absorption trap
The defining feature of Nigeria’s fiscal architecture is growing competition between capital formation and debt service. Revenue inflows are increasingly committed to servicing existing borrowing before they can finance new growth.
Axel Schimmelpfennig of the IMF has described Nigeria’s tax-to-GDP ratio as among the lowest globally, leaving too few resources for health, education and infrastructure. Davide Furceri of the IMF’s Fiscal Affairs Department has similarly warned that high debt service-to-revenue ratios constrain socio-economic development.
Yusuf echoes this concern from a private-sector perspective. “High debt service relative to revenue limits the government’s ability to support growth-enhancing sectors,” he notes. “It also weakens investor confidence because fiscal buffers become thin.”
This creates a fiscal absorption trap: revenue rises, but debt service rises faster. Borrowing finances deficits, which increase future debt service, further narrowing fiscal space. Capital expenditure may increase in nominal terms yet fail to transform productive capacity.
Structural revenue reform: a partial reset
Recent policy adjustments recognise that structure matters. President Bola Tinubu has issued an Executive Order directing that royalty oil, tax oil, profit oil, profit gas and other revenues from production sharing and risk service contracts be paid directly into the Federation Account.
Under the Petroleum Industry Act (PIA) 2021, only 40 percent of Production Sharing Contract proceeds flowed into the Federation Account. The remaining 60 percent was retained by NNPC, split between a 30 percent Frontier Exploration Fund and a 30 percent management fee.
Based on 2025 FAAC submissions, the new order could redirect roughly N14.7 trillion to federal, state and local governments. Oil and gas royalties alone totalled N7.55 trillion, petroleum taxes N4.9 trillion, and gas flare penalties over N600 billion.
The reform attempts to reduce off-budget fragmentation and structural deductions that weakened remittances. By scrapping the frontier allocation and management fee retention, oil revenues will now flow more transparently into the shared pool.
Yusuf describes the move as “a step toward improving fiscal transparency,” but cautions that revenue redirection must be matched by expenditure reform. “If higher inflows translate into higher recurrent obligations rather than productive investment, the structural problem remains,” he says.
It is a significant intervention. But revenue redirection alone does not resolve the deeper imbalance.
Scale misleads without structure
Nigeria continues to borrow heavily against volatile oil receipts and a tax-to-GDP ratio below 15 percent. Lamido Sanusi has described the country as “an oil economy with no oil revenue,” underscoring dependence on unstable earnings and weak domestic mobilisation.
Defence allocations rose from N1.76 trillion in 2022 to N4.48 trillion in 2026. Healthcare increased from N0.73 trillion to N2.14 trillion. These allocations are defensible in a country facing security and human capital pressures.
Yet when debt service rivals major ministry budgets, and when rising transfers do not consistently translate into completed infrastructure, scale becomes misleading.
Nigeria does not lack fiscal momentum. It lacks fiscal structure.
Revenue risks and alignment
Revenue is projected at N34.33 trillion in 2026 against expenditure of N58.18 trillion, leaving a deficit of N23.85 trillion. If revenue underperforms, borrowing rises. If borrowing rises, future debt service increases. Fiscal space narrows again.
Escaping this cycle requires alignment rather than expansion.
Revenue growth must exceed expenditure growth in real terms. Borrowing must fund assets with measurable productivity returns. Capital expenditure must be protected from revenue shocks. Domestic revenue mobilisation must deepen beyond oil windfalls.
Ngozi Okonjo-Iweala has warned that borrowing should not crowd out productive capital formation. That caution remains central.
The redirection of oil revenues may enlarge the Federation Account. But unless expenditure quality improves and debt service declines as a share of revenue, Nigeria risks converting structural reform into larger nominal flows without structural change.
The country’s fiscal challenge is systemic. Federal spending has surged. State allocations have surged. Oil revenue architecture is being recalibrated. Yet growth remains weak and welfare fragile.
Nigeria’s problem is not fiscal size. It is fiscal design.
