Nigeria’s state governments received N21.9 trillion in federal allocations in 2025, 44 percent more than a year earlier. Yet the Federal Government is seeking legislative approval for a new external borrowing programme that includes $4.8 billion for states and the Federal Capital Territory (FCT). The financing could help close infrastructure gaps, but it also raises a question about public investment: what have states achieved with their increased revenue, and what will additional borrowing deliver?
Figures presented by Taiwo Oyedele, minister of finance and coordinating minister for the economy, at the Federal Executive Council on October 28 show that net Federation Account Allocation Committee (FAAC) distributions to states increased from N15.2 trillion in 2024 to N21.9 trillion in 2025. The share of state expenditure devoted to capital projects also rose, from 46 percent in 2023 to 61 percent in 2025.
The figures point to greater fiscal room for investment, but they do not establish how much infrastructure has been completed or whether public services have improved. Nor do they show whether individual states have the fiscal capacity to assume additional debt.
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Oyedele said the proposed $21.7 billion external borrowing programme, which had been forwarded to the Senate for approval, includes $4.8 billion for states and the FCT. The money is intended to support infrastructure, agriculture and human capital development. However, the information presented does not specify how the $4.8 billion will be divided among states, how each government will access the funds or which entities will bear the repayment obligations. These details matter because the benefits of additional financing will depend not only on the terms of the loans, but also on the projects selected, the capacity to execute them and the ability to meet future repayments.
The test of existing revenue
Higher FAAC allocations have strengthened states’ capacity to finance public services and investment. But a larger revenue envelope does not automatically translate into better infrastructure or stronger economic activity. A higher capital-expenditure share is not, by itself, proof of improved investment. The proportion can rise because capital spending increases, recurrent expenditure falls, or both. An approved budget also does not establish that funds have been released, contractors paid or projects completed.
The economic value of public spending depends on what it produces. A road should reduce travel times or transport costs; a hospital should improve access to healthcare; and agricultural investment should help raise production or connect farmers to markets. Poor maintenance, inadequate staffing or missing equipment can weaken the returns even when construction has been completed.
The available FAAC figures therefore establish that states received more money, but not how much additional investment that revenue generated. Assessing the outcome requires evidence linking receipts to actual spending, completed projects and functioning public services.
Faruq Quadri, an economist at SPEC-Matrix, argues that “higher FAAC allocations should give state governments greater capacity to finance development, but they do not automatically eliminate the need for borrowing. The critical issue is whether existing revenues are being allocated efficiently and whether proposed loans will finance projects that deliver sufficient economic and social returns to justify their long-term costs.”
That distinction is central to the proposed state loan allocation. Borrowing can be justified where projects address substantial infrastructure gaps and produce benefits over many years. But governments need to show why existing resources are insufficient and how the additional financing will improve outcomes.
When borrowing makes economic sense
Oyedele said the wider borrowing programme would finance investments in energy, agriculture, education, healthcare, climate initiatives and social protection. About $7.9 billion is expected from multilateral and bilateral development partners, including a $5 billion component carrying an average concessional interest rate of approximately 2.1 percent. The commercial component has an indicative average rate of 7.8 percent, which the minister said was below the rate on Nigeria’s November 2025 Eurobond.
These terms could make worthwhile projects more affordable. But the cost of borrowing also depends on maturity, fees, repayment schedules and foreign-exchange exposure. The currency risk is particularly relevant where projects generate benefits mainly in naira but loans must be repaid in foreign currency. A road may lower logistics costs without directly generating foreign exchange. If the naira depreciates, the domestic cost of repayment rises even if the original loan terms remain unchanged.
States therefore need project-level assessments that consider construction costs, implementation risks, operating and maintenance expenses, expected economic or social benefits and repayment capacity. Without these assessments, concessional interest rates alone cannot establish that borrowing offers value for money.
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Rejecting borrowing outright could delay valuable infrastructure. Equally, cheap credit cannot compensate for weak project selection or poor execution. The issue is whether the expected benefits justify the full costs and whether governments can meet repayment obligations without crowding out essential services.
Accountability before additional debt
State governments could strengthen the case for further financing by publishing comparable reports showing how FAAC receipts and internally generated revenue have been used. Such reports should distinguish approved budgets from actual expenditure and identify payments made, projects completed and outstanding implementation commitments.
For major projects, disclosure should include the location, original budget, contractor, amount paid, completion status and operational condition. Independent physical verification would help determine whether reported progress corresponds with infrastructure that citizens can use.
Olugbenga Olaoye, an energy economist and member of the USAEE, argues that “the effectiveness of public spending cannot be measured by allocations or budgetary releases alone. Governments must demonstrate that the money has translated into completed projects, functioning infrastructure and improved public services. Without transparent reporting and independent verification, it becomes difficult to assess whether additional revenue is delivering value for money.”
The proposed $4.8 billion allocation should be subject to the same scrutiny. Before the financing is committed, the public needs clarity on the projects to be funded, how responsibilities will be shared between federal and state authorities, and which governments will assume repayment obligations. Monitoring should continue after disbursement, with progress reports covering both project completion and operational performance.
Comparisons across states could also help establish whether higher allocations are associated with stronger investment outcomes. Differences in population, geography, security and administrative capacity must be considered, but consistent reporting would make it easier to identify implementation gaps and assess the value obtained from public funds.
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Nigeria’s higher FAAC receipts have given states more fiscal room to invest, but the proposed borrowing programme raises a further question: what additional development will the loans deliver that existing revenues have not funded?
Answering that question requires transparent project plans, clear repayment responsibilities and evidence that the money will translate into functioning infrastructure and better public services. Without that evidence, the size of the financing package and the interest rates attached to it cannot, on their own, establish its value to the public.
Oluwatobi Ojabello, PhD, is a dynamic and multi-dimensional Assistant Editor for Economy and Markets with over two years of professional journalism experience. He delivers authoritative, data-driven coverage of fiscal policy, financial institutions and capital markets, using clear analysis to explain Nigeria’s most complex economic developments. His work focuses on macroeconomic policy, financial stability and corporate performance, turning technical issues into accessible narratives that inform both experts and everyday readers.
