State governments in Nigeria fail to execute 40% of their capital expenditure (CAPEX) budgets, according to the Fitch Ratings report. The global credit ratings firm revealed that debt servicing, driven by external debt obligations and direct deductions from federal allocations, significantly hampers states’ ability to fund and implement essential projects. The report also highlighted Nigeria’s overall Long-Term Foreign-Currency Issuer Default Rating at ‘B’ with a positive outlook of rising non-performing loans for banks in 2024 due to inflation and high interest rates.
Fitch noted that most Nigerian states depend heavily on subsidized federal government facilities to finance investments, with Lagos State as an exception due to its stronger internally generated revenue (IGR). The report attributed low CAPEX execution, averaging 60% of budgets, to inefficiencies in tax collection, socioeconomic constraints, and limited financial autonomy. Rising inflation, increased minimum wage, and other operational costs further strain state finances, forcing reliance on federal transfers and exacerbating structural funding gaps.
The reliance on Federation Account Allocation Committee (FAAC) transfers, highlighted in an earlier BudgIT report, underscores the vulnerability of many states to oil revenue fluctuations. Experts have criticized the declining focus on CAPEX in Nigeria’s Medium-Term Expenditure Framework (2025-2027), as allocations for infrastructure have dropped while debt servicing and government personnel costs have surged. Fitch’s findings call attention to the urgent need for fiscal reforms to enhance states’ financial independence and infrastructure development capacity.
