Executive Summary
Nigerian states are increasingly relying on debt markets despite significant increases in FAAC allocations following the removal of fuel subsidies, raising concerns about fiscal management and future economic risks. Domestic borrowing has surged past ₦4 trillion, creating a contradiction where higher revenues should reduce the need for borrowing. A significant portion of FAAC allocations is being absorbed by recurrent expenditures, leading states to borrow for capital projects. The effectiveness of this borrowing is questionable, with unclear links between debt and development outcomes in many states, raising concerns about transparency and the impact on private sector growth. The reliance on federal allocations alone is unsustainable, necessitating stronger domestic revenue mobilization and a more strategic approach to borrowing tied to productive investments.
- Nigerian states' increased borrowing despite higher FAAC allocations raises concerns about fiscal management and long-term economic risks.
What Is Driving The Story?
- Increased recurrent expenditure.
- Lack of domestic revenue mobilization.