WorldStage– Macroeconomic structural reforms have unlocked a massive fiscal windfall for Nigeria’s 36 subnational economies, driving aggregate state revenues up by 93% in real terms between 2023 and 2025. However, a significant pivot toward hard infrastructure has come at the expense of human capital development, raising critical long-term investment and productivity risks.
According to the latest Nigeria Development Update released by the World Bank, increased public receipts allowed state expenditures to rise by 92% over the same period. The fiscal expansion was largely propelled by foreign exchange rate unification, petrol subsidy removal, improved Value Added Tax (VAT) collections, and higher statutory allocations from the Federation Account Allocation Committee (FAAC).
SUBNATIONAL FISCAL REALLOCATION (2021–2025)
CAPITAL EXPENDITURE SHARE
2021-2023: 46%
2023-2025: 61% (+15% Shift)
EDUCATION ALLOCATION SHARE
2021: 14.9%
2025: 12.1% (-2.8% Decline)
HEALTH ALLOCATION SHARE
2021-2025: 7.0% (Broadly Stable)
SOCIAL PROTECTION SHARE
2021: 1.4%
2025: 4.4% (+3.0% Growth)
The Investment Shift: Infrastructure Takes Priority
The World Bank report, titled “Beyond the Federal Purse: How Higher Revenues Reshaped State Priorities,” details how subnational authorities utilized their expanded fiscal headroom to prioritize economic infrastructure.
Capital expenditure expanded sharply, taking up 61% of total state spending, up from 46% in previous years. The lion’s share of this capital deployment was funneled into:
Transport Infrastructure: Network expansions, roads, and logistics corridors.
Economic Investments: Housing projects, agricultural value-chain support, and commercial infrastructure.
While this aggressive infrastructure buildout addresses critical logistics bottlenecks and boosts short-term gross fixed capital formation, the World Bank warned that it reflects a growing structural imbalance in state-level budgeting.
Human Capital Dilemma: Education Funding Lagging
Despite the revenue surge, state funding for human capital failed to keep pace. The share of total state expenditure allocated to education dropped from 14.9% in 2021 to 12.1% in 2025.
Meanwhile, health sector funding remained flat at approximately 7%, and social protection spending saw a modest increase from 1.4% to 4.4%.
“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,” said Mathew Verghis, World Bank Country Director for Nigeria.
Economists warn that underinvesting in primary and secondary education while building physical infrastructure creates a long-term skills gap, threatening workforce productivity and reducing the return on investment (ROI) of capital projects.
Macroeconomic Outlook & Growth Projections
Supported by macroeconomic stabilization and subnational spending power, the World Bank projects Nigeria’s national economy will expand by an average of 4.4% annually between 2026 and 2028.
However, achieving this potential growth trajectory depends heavily on whether federal and state governments can translate higher public revenues into improved public service delivery, greater spending efficiency, and institutional accountability.
To maximize economic returns on increased public revenues, the World Bank recommended that states:
Rebalance Budget Allocations: Restore and expand funding for technical, vocational, and foundational education to align human capital with new infrastructure investments.
Enhance Fiscal Transparency: Build on recent gains in Internally Generated Revenue (IGR) quality and subnational financial reporting.
Drive Private Sector Integration: Structure capital projects as public-private partnerships (PPPs) to preserve public funds for social service delivery.
