Insights from Nigeria’s Subnational Fiscal Reform
Postscript by Waziri Adio
The World Bank, at the request of the Federal Government, implemented a programme between 2018 and 2022 designed to nudge cash-strapped Nigerian states to embrace some good practices in public financial management. Termed the States’ Fiscal Transparency, Accountability and Sustainability (SFTAS) programme, the intervention offers enduring and transferable lessons on the technical and political dimensions of governance reforms. It also underscores the possibilities and the constraints that those interested in change must embrace and navigate. It is thus a useful case study.
SFTAS was in total a $1.5 billion programme. Basically, it was a loan that the Federal Government took from the World Bank, which was then disbursed as grants to the states when they met some pre-agreed milestones. Administered by the World Bank, SFTAS focussed on four domains of public finance: fiscal transparency and accountability, domestic resource mobilisation, efficiency of public expenditure, and debt management and sustainability.
Each of these four domains had key results areas, such as the publication of annual budgets, citizen budgets and accountability reports, budget implementation reports, audited financial statements, quarterly debt reports and debt sustainability analyses, and domestic expenditure arrears; the passage of procurement laws and debt legislations; the adoption of treasury single accounts, e-procurement, contract transparency, biometric registration of civil servants, and consolidated revenue codes; and increase in internally generated revenue and decrease in debt stock. These key result areas were further broken into 22 disbursement-linked indicators (DLIs) that must be met for the states to earn the grants.
SFTAS, by various accounts, was a successful programme. By the time it ended in 2022, all the 36 states had fully participated, receiving grants ranging from $16.3 million to $56.9 million. In fact, the states earned $159.9 million more than what was allocated as grants. It can be argued that maybe the states were simply jumping at the cheques or that the targets were not too much of a stretch. But this will be both untrue and unfair. The states actually put in the work, with a good dose of healthy competition on display.
Some of the good practices have lingered beyond the lifespan of SFTAS. For example, most states continue to dutifully publish their Budget Implementation Reports (BIRs). Almost all the states have released their BIRs for the third quarter of 2025. Interestingly, the most current BIR by the Federal Government is for Q4 of 2024 (and even that is provisional because there is still no full view of the performance of the 2024 federal budget). To think that it was the same FG that a few years ago was trying to nudge the states towards good disclosure and reporting practices.
On the whole, SFTAS moved the needle in many areas, normalised some best practices, and increased visibility of the finances of states. It was a good use of money. Even at today’s exchange rate, the entire $1.5 billion disbursed over a five-year to the 36 states is roughly N2.25 trillion. This comes to an average of N12.5 billion per state per year, lower than the average monthly amount that states receive unconditionally from FAAC.
Given the immediate and continuing impact of SFTAS, the approach taken is much better than giving unconditional grants or grants to the states. The cheques that the states got were tied to the achievement of key milestones. SFTAS was born at a time that the states were struggling with the two episodes of economic recessions triggered by the plunge in oil prices/production and the COVID-19 global pandemic. The Federal Government was far from being in fine fettle itself, but it had more flexibility as a sovereign. Conditional grants from a loan the Federal Government took afforded it the opportunity to play a grandfatherly role and to shape outcome beyond the constraints imposed by our federal arrangement as, under normal circumstances, the FG cannot dictate to states. It was thus a good use of incentives and leverage.
A new report by the World Bank looks at the story of SFTAS beyond the numbers and project objectives, and tries to tease out insights from this unique experiment in subnational fiscal reforms in a federal system and in a big and diverse country. The learning review is titled “Fiscal Governance Reform in Nigeria: Lessons from the State Fiscal Transparency, Accountability and Sustainability Programme” and was prepared by Deborah Isser and Diane Zovighian. The report, which was discussed at a hybrid event on Monday, explores what worked or didn’t work well with SFTAS and why. Combining quantitative and qualitative measures, the report provides a more nuanced view of the experiment.
SFTAS resulted in marked changes in the overall behaviour of states in terms of their finances. The pictures before and after SFTAS are clear opposites. This is a very good development. The states raced, among others, to publish their budgets, audits, budget implementation reports and to set up procurement and debt management agencies. They were also able to bump up their domestic resource mobilisation. “IGR increased in nominal terms, with average share of IGR in total revenues, rising from 19.6% in 2017 to 29.2% in 2022,” the report said. However, there were issues about the quality of disclosure and perfunctory implementation (what Matt Andrew and others term isomorphic mimicry) and how limited capacity and political considerations constrained the impact of the programme. Equally evident was the wide variation among the 36 states in terms of what they prioritised and sustained. The authors tried to unpack the reason behind these variations.
They identified five factors and a few takeaways. The factors are economic, political, normative, process, and institutional. Some of these factors should be obvious while some seemed to have surprised the managers of the programme (but maybe not some of us). In the obvious column includes the realisation that states that were hard-pressed financially had more incentives to embrace a cash-for-results programme than those better resourced, that the existence and participation of the NGF Secretariat helped to smoothen things, that states with prior experience with difficult reforms easily adjusted, that vested interests exercised some kind of veto power, and that governors not facing stiff opposition or immediate re-election are better positioned to take on interventions likely to disrupt established patronage systems.
On the surprising side is the validation of the value of non-monetary levers. Even oil-producing and other relatively well-off states jumped on the SFTAS bandwagon not just because COVID-19 equalised misery but also because of peer pressure or the need by the governors to be positively perceived as reformers or modernisers. The managers also seemed surprised by the shrewd disposition of some governors. Passing laws ended up being ‘low risk-high reward’ ventures for some, as the state legislators, unsurprisingly, are mostly in the big pockets of the state governors. Besides, passing laws and implementing them faithfully are two different things. Also, governors were eager to embrace and sustain reforms that limited the control and powers of others, but not their own. This should be a no-brainer, really.
There is a lot from the SFTAS experiment and the learning review that should help in deepening current and future reform efforts. I will highlight a few of these and conclude. One, incentives work. Humans, it is said, respond to incentives. But incentives can also be perverse or can create unintended consequences. The task then is to structure the right set of incentives and pay close attention to actors’ perception of risks and rewards. Two, well-designed and thoughtfully-implemented interventions serve as tools that constrain arbitrariness and strengthen the hands of those charged with implementing reforms. Some commissioners thus had better room for manoeuvre because of the principles that the state government had signed on to.
Three, politics shapes the disposition of the authorisers and the other actors in the reform space. It is sorely important to understand the political context under which the actors operate, and their political leverage, commitments and vulnerabilities. A major takeaway of the authors of the review is that “fiscal governance is inherently political.” I will amend that by saying that all public sector reforms are primarily political. Reforms are actually more political than technical.
The fourth point I want to highlight is that good ideas travel and stick when properly aided. This leads me to my last point. The authors of the learning review indicated that “systemic accountability is slow to emerge” from SFTAS and that “the road to accountability is long and convoluted” despite clear progress on fiscal transparency indicators. This is the area where all those who work in the openness space need to do more thinking and more work. Most of the interventions under SFTAS revolve around greater disclosure of the finances and processes of state governments. This is an affirmation of the belief that sunshine remains the best disinfectant. But in a way, the SFTAS experience deeply illustrates the limits of the transparency paradigm.
The underlying assumption is that such regular disclosures would empower citizens and civic actors with the information necessary for them to actively hold duty-bearers to account. But fiscal data literacy is generally low in the country, more so at the subnational level. Also, institutions of public accountability, such as the auditor-general and the legislature, are largely weak in the states. This further reinforces the point that the link between transparency and accountability cannot be assumed to be automatic, and may actually be tenuous. Transparency has intrinsic value, but transparency is more valuable if it is instrumental. Transparency cannot be for its sake—it should lead to accountability, good governance and shared prosperity. But it may not necessarily do so.
In the particular instance of SFTAS, how valuable is the disclosure of states’ budgets, audits, budget implementation and other reports if the citizens and the civic groups do not even understand what they are looking at and do not have the skills to analyse and use the information to ask reasonable questions and make effective demand about resource allocation and governance processes? It is also unlikely that transparency mechanisms would be sustained if citizens do not put a high premium on them. What are citizens and civic groups doing with the fiscal data that the states continue to push out?
The point is not that the disclosure regime is pointless. No. The point is that SFTAS and other such reform efforts would stand a higher chance of sustained success if they incorporate deliberate attempt to enhance the knowledge, the capacity and the agency of the people in the use of technical data. There has been a narrow, almost exclusive, focus on the supply side of reforms. We need a more expansive approach, for the demand side is equally important.
