Nigeria’s removal of fuel subsidies in late May 2023 and the shift toward a more market-reflective foreign exchange regime have altered how public resources are distributed across the federation.
Higher fuel prices and a weaker naira were the immediate effects. The more durable change is fiscal: state governments are now operating with materially larger nominal inflows, giving governors greater influence over public spending than at any point in recent decades. That is why the reform debate is quietly relocating from Abuja’s macro choices to the states’ spending choices.
From subsidies to state balance sheets
For much of the past two decades, Nigeria’s political economy was shaped by subsidies and administrative controls. Fuel-price support compressed distributable revenues, while FX distortions created implicit fiscal pressures that limited what entered public budgets.
Following the 2023 reforms, more federally collected revenue now reaches the Federation account for sharing through FAAC. The scale of the shift is now measurable. Nigeria Extractive Industries Transparency Initiative (NEITI), The FAAC review put total disbursements to the three tiers at N15.26 trillion in 2024, a 43 percent jump from 2023.
Ogbonnaya Orji, former NEITI executive secretary, described 2024 as the period where the “most significant growth” in FAAC allocations occurred, particularly between 2023 and 2024, and said NEITI’s role is to provide “reliable information and data” that helps the country manage reform risks.
The state allocation jump, in one number
The clearest signal is what happened to states. NEITI’s review indicates that FAAC distributions to state governments rose from about N3.58 trillion in 2023 to N5.81 trillion in 2024, a rise of roughly 62 percent.
That is the new political economy in one statistic. Most of the reform dividend is now paid into state balance sheets first, which means citizens and investors have to track state budgets and implementation with the same intensity they track federal policy statements.
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Budgets illustrate the shift.
Across states, nominal budget envelopes have expanded sharply. Enugu State’s 2026 budget is projected at N1.62 trillion, reflecting a much larger spending envelope than the early 2000s, even though long-run dollar comparisons are shaped by exchange-rate repricing across decades.
Lagos State proposes N4.237 trillion for 2026, underlining how subnational fiscal capacity has expanded in naira terms. Similar patterns are visible across many states, signalling that Nigeria’s reform era is producing bigger state-level envelopes, even as service outcomes remain uneven.
What changed after 2023?
Three developments explain much of the acceleration. First, FX reforms increased the naira translation of dollar-linked inflows in official channels. Second, ending the petrol subsidy reduced a major fiscal deduction. Third, better revenue administration and remittance performance increased distributable revenue.
Alex Sienaert, lead economist at the World Bank, said that government revenue rose by 4.5 percent of GDP in 2024, driven by structural reforms including the removal of foreign‑exchange subsidies, improved tax administration and stronger remittance inflows, and that this improvement helped reduce Nigeria’s fiscal deficit.
The IMF’s 2024 Article IV consultation similarly frames the reforms as a deliberate attempt to restore macro stability, citing fuel subsidy reform and the unification of official FX windows as key steps, while stressing the importance of governance and revenue mobilisation alongside social protection.
Accountability gaps remain.
The new fiscal space does not automatically translate into better roads, hospitals, or schools. BudgIT’s state-level work repeatedly points to uneven transparency and weak disclosure standards across states. In its recent commentary on subnational finances, BudgIT noted that many states still depend heavily on FAAC, with 28 states relying on FAAC for at least 55 percent of total revenue in 2024, which raises questions about fiscal sustainability and incentives for local revenue mobilisation.
The World Bank’s Nigeria Development Update also notes that state fiscal balances improved on aggregate in 2024, but with significant variation, reinforcing the point that outcomes now depend heavily on state-level choices and administrative capacity.
A redefined reform debate
Nigeria’s post-subsidy political economy is increasingly centred on how money is spent, rather than how prices are controlled. Citizens are paying higher costs upfront, while the promise is that public services and infrastructure will improve through better-funded budgets.
The reforms have expanded state-level fiscal power and altered the structure of public finance. What remains unresolved is whether accountability mechanisms evolve fast enough to ensure that this shift produces measurable improvements in living standards, rather than simply larger budgets.
