The state of states is an annual comparative assessment of the fiscal performance and position of the 36 states of the federation. The first edition of the State of States research was conducted in 2017, and there have been four other editions after that. Concisely, the State of States report looks at how States can finance their budgets with revenues generated internally, how States are prioritising investments in human capital development, and the sustainability of the borrowings of the States.
The methodology used in carrying out the research entails a composite index made up of four indexes carrying different weights summing up to 100%. Index A, with a weight of 45%, looks at the ability of states to meet their Operating Expenses (Recurrent Expenditure) obligations with only the revenues generated internally and VAT received. States that rank higher on Index A have comparatively limited dependence on federally distributed revenue.
With a weight of 35%, Index B assesses the states’ ability to cover all operating expenses and loan repayment obligations with their Total Revenue—which includes Internally Generated Revenue, Statutory Allocations, and Capital Receipts—without resorting to borrowing. States that rank higher on Index B have more public revenue left to invest in capital infrastructure after fulfilling repayment obligations to lenders and their government’s operating expenses.
Index C, with a weight of 10%, looks at the debt sustainability of States. States that rank higher on Index C have more comparative fiscal bandwidth to borrow due to their comparatively low debt burden. In contrast, states that rank lower on Index C have a high debt burden than their annual revenue, making them less creditworthy.
With a weight of 10%, Index D evaluates the degree to which each State prioritises capital expenditure concerning their operating expenses (recurrent expenditure). States that rank higher on Index D give comparatively higher priority to investing in capital expenditure compared to their operating expenses.
The annual State of State publication is usually launched in the third quarter of the year, drawing attendance from governors, commissioners, legislators, multilateral agencies, the donor community, the diplomatic community, think tanks, academia, civil society organisations, the media, pressure groups and citizens.
The launch of the state of states is followed up with several engagements with state and non-state actors, both virtually and in-person, aimed at improving the fiscal position of states in subsequent fiscal years. The State of States report has promoted healthy competition between States in the period that it has been conducted. In 2021, seven state governors referenced their performance in our State of States report in their 2022 budget proposal speech.
Insights from the State of States report often generate debates among several stakeholders and different States, and the public generally. Insights from the State of States were reported in 20 national and subnational daily newspapers across the federation.