Introduction

World Bank analysis reveals a stark divide in Nigeria's subnational finances, with only two states meeting their own spending needs through local revenue in 2025. The report underscores how most governments still depend on federal allocations to fund daily operations.

What Happened

The October 2026 Nigeria Development Update shows Lagos generated internally generated revenue equal to 160% of its recurrent budget, while Enugu surpassed that figure at 377%. Across the federation, state IGR averaged roughly 50% of recurrent costs, a slight improvement from earlier years when the average hovered near 40%.

Why This Matters

With federal revenues unpredictable, states unable to cover basic spending through local taxes face serious service delivery risks. The analysis warns that without stronger IGR, a dip in federal transfers could cripple essential functions. Enugu's dramatic IGR growth from N25 billion to N209 billion demonstrates what digital tax reforms and expanded tax nets can achieve, though most states lag behind.

Key Takeaways

  • Only Lagos and Enugu fully covered recurrent expenditure through IGR in 2025.
  • State IGR covered an average of about 50% of recurrent spending in 2024–2025, up from roughly 40% in 2021–2023.
  • Enugu's IGR surged 732% in real terms through aggressive tax net expansion and digital collection reforms.
  • Lagos's performance reflects sustained revenue administration improvements.
  • Persistent fiscal vulnerability means states must prioritize IGR growth to buffer against federal shortfalls.

Conclusion

The World Bank's findings make clear that state-level revenue reform is no longer optional for budget sustainability. Lagos and Enugu prove strong IGR is achievable, but the majority of states still have ground to cover. Strengthening tax administration, embracing digital collection, and broadening the tax base are essential steps for states aiming to reduce reliance on federal allocations and build more resilient budgets.