Introduction
The recent approval of a new ₦70,000 minimum wage in Nigeria has triggered significant financial implications for state governments, with salary budgets soaring from ₦2.036 trillion in 2024 to ₦3.87 trillion in 2025—a staggering 90.23% increase.
This increase presents a mixed reality: while workers across the country anticipate improved wages, many states are grappling with fiscal sustainability concerns, as at least 27 states may be unable to meet their new salary obligations without substantial federal allocations or external borrowing.
Salary Budget Surge: The Numbers Speak
Analysis of the new salary budget across Nigeria’s 36 states reveals a sharp increase in personnel costs, with some states experiencing over 300% growth in their salary expenses.
Top Five States with the Highest Salary Budget Increases
1️⃣ Niger State: ₦25.36bn → ₦104.30bn (311.5% increase)
2️⃣ Cross River State: ₦35.02bn → ₦106.12bn (202.9% increase)
3️⃣ Rivers State: ₦167.05bn → ₦343.19bn (105.6% increase)
4️⃣ Lagos State: ₦225.11bn → ₦401.12bn (78.3% increase)
5️⃣ Delta State: ₦168.38bn → ₦276.92bn (64.4% increase)
In contrast, some states experienced minimal increases, with Gombe State even recording a 0.6% decrease in its salary budget despite the wage increment.
27 States Face Fiscal Imbalance
A closer look at state finances reveals that only nine states—Lagos, Abia, Benue, Enugu, Ogun, Niger, Kaduna, Kwara, and Osun—can cover their wage bills without external assistance. The remaining 27 states heavily rely on monthly federal allocations to pay salaries, putting them at risk of severe financial strain.
Challenges and Economic Implications
1. Heavy Dependence on Federal Allocation
Most Nigerian states generate insufficient internal revenue to cover their recurrent expenditures. With Internally Generated Revenue (IGR) falling short, many states rely on monthly allocations from the Federation Account Allocation Committee (FAAC). However, fluctuations in oil revenue and external economic shocks could affect these allocations, leaving many states unable to meet salary obligations.
2. Risk of Increased Borrowing
States facing revenue shortfalls may resort to borrowing to meet the new wage bill, further increasing their debt burdens. This could lead to:
- Delayed salary payments if revenue projections fall short.
- Higher debt servicing costs, diverting funds from critical infrastructure and development projects.
3. Bloated Workforce and Payroll Irregularities
Several states maintain excessive workforce levels, with reports of ghost workers inflating salary bills. The new wage structure may force state governments to reassess staffing policies, potentially leading to workforce reductions or restructuring to manage costs.
4. Economic Growth and Inflation Concerns
While the minimum wage increase aims to improve workers’ living conditions, it could also contribute to inflationary pressures, as higher salaries may drive up the cost of goods and services. Businesses may also respond by increasing prices to offset higher wage expenditures.
Way Forward: What Can States Do?
1. Strengthening Internally Generated Revenue (IGR)
To reduce dependency on federal allocations, states must:
✅ Improve tax collection systems and broaden the tax base.
✅ Invest in sectors that enhance economic growth, such as agriculture, tourism, and technology.
✅ Encourage public-private partnerships to attract investments and boost local industries.
2. Workforce Rationalization and Cost-Cutting Measures
State governments may need to:
✅ Conduct staff audits to eliminate ghost workers and payroll fraud.
✅ Reduce overhead costs by adopting technology-driven governance.
✅ Restructure state agencies to enhance efficiency and reduce duplication of functions.
3. Fiscal Discipline and Transparency
Ensuring prudent financial management will be crucial. States should:
✅ Adopt zero-based budgeting, ensuring funds are allocated based on necessity rather than historical spending.
✅ Prioritize projects that generate economic returns rather than politically motivated expenditures.
Conclusion: A Critical Test for State Governments
The ₦70,000 minimum wage implementation represents a significant milestone in Nigeria’s labor and economic policies. However, its success hinges on the ability of state governments to effectively manage the fiscal impact.
With the Nigeria Labour Congress (NLC) setting a December 1 deadline for full implementation, the coming months will be a crucial test for state governments. Will they rise to the occasion, adopt necessary reforms, and ensure timely salary payments? Or will they plunge into deeper financial crises, unable to sustain their wage obligations?
Only time will tell.
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