Why states must rethink governance before it is too late

In any rational system, a surge in revenue should translate into relief for citizens (better roads, functional hospitals, quality schools, and a visible improvement in living standards). But in Nigeria today, the opposite seems to be unfolding. At a time when allocations from the Federation Account Allocation Committee (FAAC) have risen by an astonishing 161 percent in just three years, many states are quietly returning to borrowing.

This contradiction is not just troubling; it is revealing.

It confirms a fear long expressed by experts: that easy money, when not matched with discipline and vision, can breed complacency. Instead of becoming a springboard for productivity and innovation, FAAC windfalls are fast becoming a crutch, encouraging a culture of dependence and, worse, fiscal indiscipline.

The numbers tell a stark story. After an initial decline in domestic debt from N5.8 trillion in 2023 to N3.8 trillion in early 2025, states have once again begun to borrow, pushing debt levels back up to N4 trillion within months. At the same time, FAAC allocations have ballooned, from N2.8 trillion in 2022 to over N7.3 trillion in 2025.

Ordinarily, such a revenue surge should reduce the need for borrowing. Instead, it has coincided with a renewed appetite for debt. This is not merely a fiscal anomaly; it is a governance failure.

In an ideal federation, increased allocations would empower states to invest in sectors that directly impact citizens. Agriculture would be mechanised and secured, enabling farmers to produce at scale. Public schools would be revitalised, reducing the burden on struggling families. Hospitals would be equipped and staffed, eliminating the need for medical tourism or expensive private care.

Infrastructure projects would be deliberate, strategic, and people-focused, not vanity projects designed for political views. Every naira borrowed would be tied to clear economic returns, with measurable outcomes that improve productivity, create jobs, and expand the tax base.

Most importantly, states would not rely overwhelmingly on FAAC. Internally Generated Revenue (IGR) would become the backbone of fiscal sustainability, reflecting vibrant local economies driven by enterprise, innovation, and efficient governance. This is what fiscal responsibility looks like.

Today, however, most states remain heavily dependent on federal allocations, with FAAC accounting for up to 70-95 percent of total revenues in many cases. Only Lagos has demonstrated a different model, where internal revenue plays a dominant role.

For the majority, IGR remains weak, not necessarily because the potential does not exist, but because the urgency to develop it is lacking. Why innovate when allocations keep rising? Why reform when there is easy money? This is where the problem lies.

The renewed borrowing suggests that increased revenues are being absorbed by rising expenditures, many of which do not translate into tangible benefits for citizens. Costly infrastructure projects, expanding administrative bottlenecks, and politically motivated spending are crowding out investments in critical sectors.

Meanwhile, ordinary Nigerians continue to bear the burden through poor services, rising poverty, and a widening gap between government spending and real impact.

Breaking this cycle requires a fundamental shift in how states approach governance and finance.

First, states must treat FAAC allocations as a catalyst, not a lifeline. These funds should be invested in productive sectors (agric, manufacturing, technology, and small businesses) that generate sustainable economic activity and expand the revenue base.

Second, aggressive IGR expansion is non-negotiable. This does not mean overtaxing already burdened citizens, but rather improving tax administration, formalising informal sectors, leveraging technology, and unlocking dormant economic assets. States must earn their revenues, not wait for them.

Third, borrowing must become more disciplined and transparent. Debt should only be incurred for projects with clear economic value, projects that can pay for themselves over time. White-elephant projects and politically expedient spending must give way to evidence-based investment.

Fourth, public accountability must be strengthened. Citizens deserve to know how funds are spent and what outcomes are achieved. Transparent budgeting, open procurement processes, and performance tracking should become standard practice.

Fifth, there must be a deliberate focus on human capital. Education, healthcare, and social protection are not expenses; they are investments. A healthy, skilled population is the foundation of any thriving economy.

Nigerian states can continue on the current path, where rising revenues coexist with rising debts and where citizens see little improvement despite increased spending. Or they can choose a different path: one of discipline, innovation, and people-centred governance.

The truth is simple. FAAC windfalls are not a substitute for leadership. They are an opportunity, one that must be used wisely or risk being squandered.

If states fail to act now, the consequences will be severe: deeper debt burdens, weaker economies, and a further erosion of public trust. But if they rise to the occasion, this moment could mark the beginning of a new era where states are not just administrative units but engines of growth and prosperity.