A recent report has revealed that 32 of Nigeria’s 36 states depend on allocations from the Federation Account Allocation Committee (FAAC) for a significant portion of their revenue, with some states deriving as much as 55% or more of their funds from federal disbursements. This reliance highlights the fiscal challenges many Nigerian states face and raises questions about sustainable revenue generation and fiscal autonomy.
The FAAC Revenue Model
FAAC allocations serve as a primary financial lifeline for most Nigerian states, providing funds collected from federal sources, primarily oil revenues, as well as customs and other federally administered taxes. These disbursements, intended to support the developmental needs and operational costs of states, are essential for delivering critical services, paying salaries, and managing infrastructure.

According to the report, the states heavily reliant on FAAC allocations struggle to generate internal revenue, often due to a lack of diverse economic activities or a limited tax base. This dependence has persisted despite various attempts by the federal government to promote fiscal independence among the states through programs aimed at enhancing internally generated revenue (IGR).
States’ Dependence on Federal Allocations
The report underscores that the structure of Nigeria’s revenue distribution has contributed to states’ dependency on FAAC, particularly for non-oil-producing regions. With limited industrialization and economic diversification, many states find it challenging to develop alternative revenue streams. This is particularly true in northern states, where agricultural productivity and economic activities are frequently hindered by climate and infrastructural limitations.
In contrast, some oil-producing states in the Niger Delta, benefiting from additional 13% derivation funds due to their contributions to national oil revenue, show a relatively lesser dependency on FAAC allocations. Nevertheless, they, too, continue to rely on FAAC for a considerable share of their budget due to a lack of revenue diversity.
The Challenge of Internally Generated Revenue (IGR)
The report points to Nigeria’s struggle with internal revenue generation as a major challenge for states. While some states, like Lagos, Rivers, and Ogun, have made strides in growing their IGR, others lack the infrastructure or investment needed to support local economies. As a result, the majority of Nigerian states remain reliant on federal allocations, which are often susceptible to fluctuations in oil prices and global market conditions.
Several initiatives have been introduced to tackle these challenges, including the Federal Government’s push to encourage states to invest in agriculture, mining, and other sectors with revenue potential. However, the lack of capital, as well as underdeveloped markets and infrastructure, continues to limit the effectiveness of these programs.
**Implications of FAAC Dependency for State Budgets**
The high level of dependency on FAAC allocations has significant implications for the fiscal health and autonomy of Nigerian states. When oil prices fall, FAAC distributions typically decline, directly impacting states’ ability to meet their financial obligations. This dependency limits states’ flexibility in budget planning, as their revenues are closely tied to federal revenue cycles and market variables they cannot control.
Moreover, FAAC dependency may stifle innovation and growth in state economies. Without strong incentives to boost IGR, many states remain in a cycle of dependency, limiting their potential for economic development. The reliance on FAAC funds can also affect accountability, as states may be less motivated to implement efficient tax systems or pursue private investment aggressively if federal funds are accessible.
Calls for Fiscal Reforms
Amid growing calls for fiscal reform, experts are urging the government to reconsider revenue allocation models and support state-driven initiatives for economic diversification. There are increasing calls for states to modernize their tax collection mechanisms, improve financial transparency, and explore opportunities in sectors like tourism, agriculture, and technology to generate sustainable revenue streams.
In addition, fiscal experts recommend that the federal government continue to incentivize states that improve their IGR performance. States like Lagos have become less dependent on FAAC through aggressive revenue collection and diversified investment, serving as a model for other regions. The implementation of fair and transparent revenue-sharing formulas could further encourage states to pursue growth-oriented policies and develop local economies.
Conclusion
The report highlights the stark reality that 32 states in Nigeria rely on FAAC for over half of their revenue, underscoring the critical need for fiscal diversification and stronger internal revenue mechanisms. While FAAC provides essential support, an overreliance on federal allocations leaves states vulnerable to economic fluctuations and limits their fiscal autonomy.
To foster sustainable economic growth, Nigerian states must adopt policies that reduce dependency on FAAC by promoting investment and industry at the state level. Through strategic reforms and proactive economic policies, Nigerian states have the potential to enhance their fiscal resilience, ultimately contributing to a stronger and more balanced national economy.
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