The Nigeria Extractive Industries Transparency Initiative (NEITI) has revealed that the Federal Government deducted a substantial N800 billion from state allocations in 2024 to service foreign debts and fulfil other contractual obligations.

This deduction disclosed in NEITI's quarterly review released on Tuesday, March 18 showed the financial strain faced by states despite record-high disbursements from the Federation Accounts Allocation Committee (FAAC).

According to Obiageli Onuorah NEITI's acting Director of Communication and Stakeholders Management, yjeFAAC allocations surged to N15.26 trillion in 2024, marking a significant 43% increase from the previous year.

This increase was attributed to fiscal reforms such as the removal of fuel subsidies and adjustments in exchange rates.

FG shares over N5 trillion
NEITI revealed that the Federal Government received N4.95 trillion, state governments were allocated N5.81 trillion, and local governments received N3.77 trillion, Punch reports.

Notably, state governments saw the highest percentage increase in allocations, rising by 62% from N3.58 trillion in 2023 to N5.81 trillion in 2024.

However, despite these higher allocations, states experienced huge deductions, primarily due to debt servicing obligations.

The N800 billion deduction at source posed additional fiscal pressures, particularly impacting states with lower revenue bases.

Lagos State suffered the highest deduction of N164.7 billion, representing over 20% of the total deductions.

Followed by Kaduna with N51.2 billion, Rivers with N38.6 billion, and Bauchi with N37.2 billion.

Fiscal sustainability of states

The report raised concerns about the fiscal sustainability of states burdened with high debt ratios, noting that many of these states ranked lower in FAAC allocation rankings but higher in terms of debt deductions.

NEITI's Executive Secretary, Dr Ogbonnaya Orji, attributed the sharp rise in FAAC disbursements to fiscal reforms initiated in mid-2023, including fuel subsidy removal and foreign exchange policy adjustments, which significantly boosted naira-denominated mineral revenues.

Despite the revenue gains, Dr Orji cautioned that these policies also introduced economic challenges such as inflationary pressures, escalating debt servicing costs, and fiscal uncertainties for oil-dependent states.

In 2024, Lagos State topped the FAAC allocation list with N531.1 billion, followed by Delta with N450.4 billion and Rivers with N349.9 billion.

Conversely, Nasarawa, Ebonyi, and Ekiti received the least allocations of N108.3 billion, N110 billion, and N111.9 billion, respectively.

Recommendations from NEITI

On solutions, NEITI recommended urgent measures to mitigate economic risks, including maintaining exchange rate stability to curb inflation, adopting conservative crude oil price and production estimates to prevent budget shortfalls, and diversifying revenue sources beyond oil and gas.

The agency stressed the importance of enhancing internal revenue generation and promoting fiscal transparency across all government levels in alignment with international commitments.

The report also urged stakeholders to leverage its findings for effective monitoring of government expenditure and accountability in managing public resources.