About 29 state governments in Nigeria are currently grappling with a funding shortfall of N4.5tn, delaying critical infrastructure projects across the country. This deficit underscores the struggle to meet the planned capital expenditure goals for key development initiatives.
According to reports, the states collectively allocated N3.76tn for capital projects out of an N8.25tn target, leaving them short by N4.25tn. Despite a 40% rise in monthly federal allocations, the shortfall reveals a significant gap between planned capital spending and actual execution.
This situation reflects a stark contrast to 2023, when N4.04tn was spent on capital expenditure by sub-national governments, with the current nine months of 2024 witnessing a N280bn decline.
The states’ fiscal struggles are compounded by debt servicing. Between January and September 2024, these states allocated N658.93bn to service debts from both local and international creditors. Meanwhile, internal revenue generation fell short—states raised N1.92tn but were expected to generate N2.868tn, creating a deficit of N948.28bn.
Experts attribute this funding gap to persistent issues such as low internal revenue generation, heavy reliance on federal allocations, and rising recurrent costs. Notably, N1.994tn was spent on recurrent expenses in the first nine months of the year, which included administrative costs such as sitting allowances, utilities, and travel expenses.
A closer look at individual states’ spending reveals varied levels of capital investment execution:
- Lagos: Spent N770.03bn (57.8% of its N1.32tn target).
- Rivers: Spent N431.86bn, exceeding its target by 79.6%.
- Delta: Disbursed N237.09bn, reaching 58.1% of its N408.35bn target.
- Ebonyi: Executed N103.41bn, achieving 77.9% of its target.
- Ekiti: Reached N59.79bn, equating to 84.7% of its N70.62bn goal.
Conversely, states like Benue (14.7%), Imo (29.3%), and Niger (26.8%) have faced challenges, lagging far behind their targets due to financial constraints and competing expenditures.
Credit rating agency Fitch has flagged concerns about the states’ inability to execute 40% of their capital expenditure budgets. The agency attributes this to factors such as limited internally generated revenue, inflation, low tax collection efficiency, and high recurrent spending.
The report also pointed out that most Nigerian states depend on FAAC (Federation Account Allocation Committee) transfers and subsidised federal funding to finance key projects, leaving them vulnerable to funding gaps and implementation delays.
The federal government has not fared better, with its capital spending declining by 25.3% to N1.99tn in the first half of 2024 from N2.68tn in the previous year. Experts note that shifts in budget priorities from capital expenditure to debt servicing and personnel costs are key drivers of this decline.
Experts suggest that addressing this shortfall requires a multi-pronged approach, including improved tax collection, better revenue diversification, and strategic partnerships between state and federal governments. As Nigeria battles with this funding gap, achieving sustained economic growth and addressing the population’s infrastructure needs remain critical priorities.
