The Federal Government deducted N800bn from state allocations in 2024 to service foreign debts and other contractual obligations, according to the latest FAAC Quarterly Review released by the Nigeria Extractive Industries Transparency Initiative.
In a statement on Tuesday by the acting Director of Communication and Stakeholders Management, NEITI, Mrs Obiageli Onuorah, the agency noted that the report highlighted the financial strain on states due to debt repayments, despite record-high disbursements from the Federation Accounts Allocation Committee.
The statement revealed that total FAAC allocations reached N15.26tn in 2024, marking a 43 per cent increase from the previous year.
The surge was attributed to fiscal reforms, including the removal of fuel subsidies and exchange rate adjustments, which significantly boosted oil revenue remittances.
A breakdown of the disbursements showed that the Federal Government received N4.95tn, state governments got N5.81tn, and local governments were allocated N3.77tn.
The report noted that state governments recorded the highest percentage increase in allocations, rising by 62 per cent from N3.58tn in 2023 to N5.81tn in 2024.
Despite the higher allocations, states faced significant deductions, with N800bn removed at source for foreign debt servicing and other obligations.
The deductions placed additional fiscal pressure on many states, particularly those with lower revenues.
Lagos State had the highest debt deduction of N164.7bn, representing over 20 per cent of total deductions. Kaduna followed with N51.2bn, while Rivers and Bauchi had N38.6bn and N37.2bn, respectively.
The report warned that several states with high debt burdens also ranked lower in FAAC allocations, raising concerns about their fiscal sustainability and ability to fund critical projects.
The statement read, “The review highlighted that total debt deductions for states’ foreign debts and other contractual obligations amounted to N800bn, representing 12.3 per cent of total allocations to the 36 states, including derivation revenue.
“Lagos State recorded the highest debt deduction of N164.7bn, accounting for over 20 per cent of total deductions. Kaduna State followed with N51.2bn, while Rivers (N38.6bn) and Bauchi (N37.2bn) also recorded significant debt deductions.
“The report noted that many states with high debt ratios were in the lower half of the FAAC allocation rankings but ranked higher for debt deductions, raising concerns about their debt-to-revenue ratios and overall fiscal health.”
The Executive Secretary of NEITI, Dr Ogbonnaya Orji, explained that the sharp rise in FAAC disbursements was driven by major fiscal reforms, particularly the removal of fuel subsidies in mid-2023 and adjustments to the foreign exchange policy, which increased naira-denominated mineral revenues by over 400 per cent.
However, he cautioned that while these policies had significantly increased revenue, they had also introduced economic challenges, including inflationary pressures, rising debt servicing costs, and fiscal uncertainty for states heavily reliant on oil revenue.
Lagos received the highest FAAC allocation in 2024 with N531.1bn, followed by Delta with N450.4bn and Rivers with N349.9bn.
At the lower end, Nasarawa, Ebonyi, and Ekiti received the least allocations of N108.3bn, N110bn, and N111.9bn, respectively.
The six highest-receiving states—Lagos, Rivers, Bayelsa, Akwa Ibom, Delta, and Kano—accounted for 33 per cent of total allocations to states, while the six lowest-receiving states—Yobe, Gombe, Kwara, Ekiti, Ebonyi, and Nasarawa—accounted for only 11.5 per cent.
NEITI recommended urgent measures to mitigate economic risks and ensure sustained revenue growth.
It called for exchange rate stability to curb inflation, conservative crude oil price, and production estimates to prevent budget shortfalls, and diversification of revenue sources beyond oil and gas.
The agency also urged all tiers of government to strengthen internal revenue generation and improve fiscal transparency in line with Open Government Partnership and Extractive Industries Transparency Initiative commitments.
The organisation emphasised the need for accountability in managing public resources and urged stakeholders to use the report’s findings to monitor government spending effectively. (Punch)
