As Nigeria grapples with record-high inflation, rising debt burdens, and stunted sub-national development, the call for fiscal federalism has grown louder. Political leaders, economists, and civil society actors are increasingly urging a fundamental restructuring of the country’s fiscal architecture, one that would allow states to control a greater share of their revenues and chart independent paths to economic growth.
The debate came to a head recently at the LEADERSHIP Annual Conference and Awards by the vice president of the federation, Kashim Shetima, who posited that Nigeria’s fiscal challenges stem from the mismanagement of resources and not the existing federal structure.
In his remarks as special guest of honour and keynote speaker, Shettima stressed that fiscal irresponsibility, rather than the structure of the country’s federalism, was the root cause of Nigeria’s governance challenges.
The vice president, who was represented by special adviser to the President on general duties, Office of the Vice President, Aliyu Modibbo Umar, said, “The Nigerian challenge lies less in the structure of our federalism and more in the deficit of our collective fiscal responsibility.
“The issue is not merely how much each federating unit accrues, but how judiciously such resources are utilised,” he said.
At the heart of the agitation for fiscal federalism is the concentration of fiscal power at the federal level. Currently, the federal government collects the bulk of national revenues, primarily from oil, and redistributes them to the 36 states and 774 local governments through a monthly allocation process coordinated by the Federation Accounts Allocation Committee (FAAC). Critics argue this has fostered dependency, discouraged innovation at the sub-national level, and stifled development across much of the country.
“Nigeria cannot make meaningful economic progress until we decentralise fiscal powers,” said development economist at Adeleke University, Professor Tayo Bello. “The current system breeds inefficiency. States have no incentive to develop their local economies when they can wait for monthly handouts from Abuja,” he noted.
Recent economic data provides a stark backdrop for this call. Many state governments rely on FAAC allocations for over 80 per cent of their budgets, with internally generated revenue (IGR) contributing only marginally to their coffers. Only a handful of states—Lagos, Rivers, Ogun, and FCT—consistently post strong IGR performance, while others struggle to pay salaries, let alone invest in infrastructure or human capital.
“If states had more control over resources like solid minerals, agriculture, or even aspects of VAT, they would develop policies tailored to their unique economic strengths; It’s about unleashing regional competitiveness,” said financial economist at Auchi Polytechnic, Zakari Mohammed.
The political undercurrents of this debate are intensifying as well. In recent months, governors from the South-West, South-South, and parts of the North-Central have renewed their push for fiscal restructuring. A policy strategist, David Amah, noted during a policy retreat that “true federalism must begin with fiscal autonomy. States must be able to grow their own revenue base and contribute to national prosperity from a position of strength, not dependence.”
It is noteworthy that insecurity, poor infrastructure, and poverty have exposed the weaknesses of a centralised fiscal system. In many rural communities, federal interventions are absent or inadequate, and states are too financially constrained to respond effectively.
“Fiscal federalism isn’t just about money—it’s about responsibility and responsiveness,” said a financial economist at Nnamdi Azikiwe University, Dr. Felix Echekoba. “When states have control, they can plan better, attract investment, and respond faster to local needs. Right now, they are boxed in by federal bureaucracy and budgetary uncertainty,” he noted.
Nigeria’s 1999 Constitution allocates exclusive control of key revenue-generating sectors—such as oil and gas, ports, railways, and value-added tax—to the federal government. Efforts to challenge this monopoly, such as the recent VAT collection suit filed by the Rivers and Lagos State governments, have triggered national debates and legal battles, but also highlighted growing frustration with the status quo.
“The political will to restructure Nigeria has been lacking,” said David Atuma, an economic consultant. “But the economic realities are catching up with us. The centre can no longer hold everything. Abuja is overwhelmed, and the states are underperforming. Fiscal federalism offers a path out,” he said.
It is noteworthy that the chief executive at Economic Associates, Dr. Ayo Teriba, told NATIONAL ECONOMY that much of the current system that constitutes federalism was largely foisted on the people by military regimes. He said there is the need for governors of states and the federal government to come together and decide to have fiscal federalism and the kind of fiscal federalism it should be, not one that is imposed upon the people. He further said that the number of states and local governments the country currently has were the work of the military, not democratically-elected governments.
There are growing calls for constitutional amendments that would allow states to retain a higher share of revenues derived from their territories. Some proposals include allowing states to collect VAT, exploit solid minerals, control local policing and education, and enter into bilateral trade deals under a national framework.
“If Nigeria is serious about economic diversification, fiscal federalism must become a national priority,” said an economist, Dr. Lanre Adetutu. “We need an economy that is dynamic at the sub-national level, not one held hostage by oil prices and centralised planning,” he added.
As inflation hits 33 per cent and foreign investment dwindling, many believe that a more autonomous fiscal structure could enable states to build investor-friendly environments, stimulate industrial clusters, and attract diaspora capital.
