Under Nigeria’s federal system, states have wide political powers but depend heavily on their constitutional share of oil and non-oil revenues collected by the federation, a structure the World Bank says has weakened accountability and reduced incentives for strong financial management.

In a new report, the World Bank explained that this long-standing dependence has encouraged poor use of public resources, as states face little pressure to improve systems or raise revenue independently. The situation became clear during the 2015 commodity price crash, when many states struggled to pay salaries and meet basic obligations, exposing deep weaknesses in fiscal governance.

This crisis led to the World Bank-supported States Fiscal Transparency, Accountability and Sustainability, SFTAS, Program for Results, which ran from 2018 to 2022. Through the programme, about $1.5 billion was distributed to Nigeria’s 36 states as performance-based grants aimed at encouraging common standards in fiscal governance and financial transparency.

Measured by official programme results, the World Bank said SFTAS exceeded expectations by helping states establish basic fiscal management systems from a very low starting point. All 36 states now publish their budgets and audited financial statements, while nearly all states publish budget implementation reports, citizen budgets, and citizen accountability reports. In addition, 24 states passed laws granting their audit offices financial and operational autonomy.

On revenue generation, the report said average internally generated revenue increased from about 20 percent to 30 percent in nominal terms. It also noted that 29 states adopted consolidated revenue codes, while 17 states expanded Treasury Single Account coverage to at least 80 percent of their total state finances.

Spending controls also improved. According to the report, 33 states passed procurement laws establishing autonomous procurement agencies. About half of the states now publish contract data and have adopted e-procurement systems. Nearly all states also linked their payroll systems to biometrics and Bank Verification Numbers to reduce payroll fraud.

In the area of debt management, 35 states passed debt management legislation, and all 36 states are now publishing annual debt sustainability analyses.

Despite these gains, the World Bank said the reforms have not gone far enough to stop fiscal mismanagement or guarantee accountability. The report highlighted persistent challenges such as poor-quality fiscal data, politically inflated budgets that lack credibility, limited use of fiscal data by civil society groups, weak functionality of Treasury Single Account systems, frequent use of direct contracting in procurement, and failure by governments to act on debt data that is already published.

The Bank noted that SFTAS did not expect uniform reform adoption across all states, and results showed wide variations in performance depending on local conditions and political choices.

The report identified five key factors shaping how reforms take root. First, it said financial incentives clearly worked. Performance-based grants motivated reforms, especially in states with lower internally generated revenue per capita. Oil-producing states, which are buffered by higher revenues, were slower to embrace reforms. However, the report stressed that money is only one factor, as political, institutional, and social considerations also influence decisions.

Second, the World Bank said fiscal governance reforms are deeply political because they shift power. Measures such as credible budgets, independent audits, transparent procurement, and centralized revenue collection reduce discretion and weaken patronage networks. In many clientelist settings, the report said transparency reforms do not produce quick electoral rewards, leading politicians to use budgets to signal ambition or appease groups instead.

Still, SFTAS helped change political dynamics in subtle ways. Budget officials gained tools such as medium-term expenditure frameworks to limit politically motivated spending. Peer learning and competition also played a role, as public rankings increased the cost of lagging behind. As one interviewee quoted in the report said, “It’s one thing to be incompetent and people don’t know. It’s another when every other state is doing something and you are not.”

Third, the report said vested interests remain the hardest obstacle. Patronage networks and weak accountability encouraged some states to meet SFTAS rules on paper while avoiding real change. Procurement showed this tension, as e-procurement improved transparency in some cases, but politically connected firms still won large contracts through non-competitive processes.

Fourth, the World Bank said accountability takes time. While transparency improved quickly, oversight remains weak due to underpowered legislatures, limited civic capacity, and dominant party systems. Many public consultations were symbolic, and audit offices often remained underfunded.

Finally, the report said bureaucratic routines matter. Repeated use of reporting templates and data systems created habits within civil services that continue even when political support fades. The Bank described this as “bureaucratic stickiness,” noting that these quiet shifts are critical for lasting reform.

Overall, the World Bank said Nigeria’s fiscal reform journey reflects a difficult middle ground shaped by politics, interests, and uneven capacity, but progress remains possible when incentives, institutions, and accountability slowly align.

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