The Federal Government deducted N800 billion from state allocations in 2024 to pay off foreign debts and other financial obligations.
This was revealed in the latest FAAC Quarterly Review released by the Nigeria Extractive Industries Transparency Initiative (NEITI).
NEITI’s report showed that despite increased disbursements from the Federation Accounts Allocation Committee (FAAC), many states struggled with financial pressure due to debt repayments.
In 2024, total FAAC allocations amounted to N15.26 trillion, which was 43 percent higher than the previous year.
The increase was linked to economic reforms such as the removal of fuel subsidies and changes in the exchange rate, which boosted government revenue.
The Federal Government received N4.95 trillion from the total allocation, while states got N5.81 trillion, and local governments were given N3.77 trillion.
The report showed that state allocations rose by 62 percent from N3.58 trillion in 2023 to N5.81 trillion in 2024.
However, the N800 billion deduction at the source put additional strain on state budgets, especially in states with lower revenues.
Lagos had the highest debt deduction of N164.7 billion, making up more than 20 percent of the total deductions.
Kaduna followed with N51.2 billion, while Rivers and Bauchi had deductions of N38.6 billion and N37.2 billion, respectively.
According to the report, some states with high debt burdens received lower FAAC allocations but had higher deductions, raising concerns about their financial stability.
NEITI warned that these states might struggle to fund essential projects.
The report also noted that while fiscal reforms had increased government earnings, they had also brought economic challenges such as inflation and rising debt servicing costs.
The agency urged authorities to stabilize the exchange rate, adopt realistic crude oil price estimates, and diversify revenue sources to reduce reliance on oil.
NEITI also called for improved transparency in government finances and better internal revenue generation to ensure sustainable economic growth.
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