Increased government earnings fuel infrastructure investment across states, but education and healthcare spending lag as inflation continues to squeeze households……….
Nigeria’s economy expanded by 4.2 per cent in the first half of 2026, as rising government revenues gave state governments greater capacity to invest in infrastructure, although spending on essential social services continued to trail behind.
The latest Nigeria Development Update by the World Bank shows that aggregate state revenues surged by approximately 93 per cent in real terms during the period, while total expenditure rose by about 92 per cent.
The report, titled “Beyond the Federal Purse: How Higher Revenues Reshaped State Priorities,” said the economy performed better than in the corresponding period of 2025, when growth stood at 3.9 per cent, and the 3.5 per cent recorded in 2024.
The services sector remained the biggest contributor to the expansion, with agriculture also providing additional support.
The improved performance helped stabilise the country’s poverty rate for the first time since 2019. However, the World Bank cautioned that persistent inflation continued to weaken household purchasing power, limiting the extent to which economic gains translated into better living conditions.
According to the bank, Nigeria has recorded improvements in economic growth, public finances and its external position. It nevertheless emphasised that maintaining the progress would depend on sustained reforms and more effective public service delivery.
The increase in state government earnings comes amid a broader improvement in public revenue following major economic policy changes introduced in recent years.
Between 2023 and 2025, gross federation revenues rose by 69 per cent in real terms, supported largely by exchange-rate reforms, the removal of the petrol subsidy and improvements in revenue collection.
State governments emerged as major beneficiaries of the increased inflows, receiving higher statutory allocations alongside refunds, payments of outstanding federal obligations, dedicated intervention funds and stronger collections from Value Added Tax.
With more resources available, states increased their focus on capital projects, pushing the share of capital expenditure in total spending from 46 per cent to 61 per cent.
Transport infrastructure accounted for the largest increase in investment, while housing, agriculture and other development-related projects also recorded significant spending growth.
The shift suggests that state governments are directing a greater proportion of their expanded revenues towards physical infrastructure and investments expected to stimulate economic activity.
However, the spending pattern also raises questions about the balance between infrastructure development and the funding of services that directly affect the welfare of residents.
Despite the increase in available resources, the World Bank found that expenditure on education, healthcare and social protection did not grow as quickly as spending on economic infrastructure.
Education’s share of total state expenditure declined from 14.9 per cent in 2021 to 12.1 per cent in 2025, indicating a reduced proportion of public spending allocated to the sector.
Health expenditure remained relatively unchanged at around seven per cent, while social protection recorded an increase, with its share of total spending rising from 1.4 per cent to 4.4 per cent over the same period.
The figures highlight a gap between the growing financial capacity of state governments and the resources allocated to critical social services, even as millions of Nigerians continue to face pressure from the rising cost of living.
World Bank Country Director for Nigeria, Mathew Verghis, said the additional revenue generated through economic reforms offered states an opportunity to improve public infrastructure and essential services.
“The bold macroeconomic reforms have substantially increased fiscal revenues at the state level, providing a unique opportunity to improve infrastructure, education, healthcare, and water services, which are critical to creating more and better jobs,” Verghis said.
He added that the effective use of public funds would determine whether the increased revenues delivered meaningful improvements in people’s lives.
“Strengthening spending efficiency, accountability, and service delivery will be essential to ensuring that public resources improve the lives of Nigerians.”
Beyond the gains in public revenue, the World Bank report examined how the conflict in the Middle East has affected Nigeria’s economic outlook, with higher oil prices delivering both benefits and challenges.
Rising crude oil prices strengthened export earnings, helping Nigeria’s current account surplus climb to 12 billion dollars in the first half of 2026, equivalent to 7.1 per cent of gross domestic product.
The surplus was higher than the 8.6 billion dollars, representing 6.7 per cent of GDP, recorded in the corresponding period of 2025.
The increase in oil prices also supported government revenues. However, the bank noted that existing commitments arising from forward oil sales and oil-backed financing arrangements limited the additional gains available to the country.
Nigeria’s gross external reserves also exceeded 54 billion dollars in September, supported largely by foreign portfolio inflows, while ongoing reforms contributed to improved functioning of the foreign exchange market.
Despite the stronger external position, the benefits of higher oil prices have come with added pressure on domestic prices.
Fuel prices increased following the outbreak of the conflict, while seasonal food price pressures during the lean season further complicated efforts to bring inflation down.
Nigeria had made progress in reducing inflation before the latest external shocks began to weigh on the outlook.
Headline inflation fell from 27.6 per cent in January 2025 to 15.2 per cent in December 2025, helped by tight monetary policy and reduced volatility in the foreign exchange market.
However, renewed pressure from fuel and food prices has slowed the pace of improvement, leaving households vulnerable despite the stronger economic growth recorded in the first half of 2026.
The World Bank expects the economy to maintain moderate growth over the next three years, projecting average growth of 4.4 per cent between 2026 and 2028.
Inflation is also expected to ease gradually to about 12 per cent by 2028, while poverty is projected to begin declining.
Achieving these projections, however, will depend partly on how effectively governments manage public resources and sustain reforms amid domestic and international economic uncertainties.
The bank stressed that states would need to improve the efficiency of public spending, strengthen internally generated revenue and enforce greater accountability to ensure that increased allocations translate into better infrastructure, stronger public services and improved living standards.
For Nigeria, the challenge now extends beyond generating more revenue. The critical test will be whether the additional funds can deliver tangible benefits to households through better services, more employment opportunities and sustained improvements in purchasing power.
