Key points
- Nigeria generated nearly ₦84tn in federation revenue between 2023 and 2025, but 41% was deducted before distribution.
- Deductions surged faster than revenue growth, driven largely by statutory transfers to MDAs.
- World Bank warns rising “first-line charges” are shrinking fiscal space and weakening transparency.
Main story
Nigeria’s Federation Account recorded a cumulative revenue of about ₦83.97 trillion between 2023 and 2025, but a significant portion—₦34.53 trillion—was deducted at source before distribution to the three tiers of government, according to the latest Nigeria Development Update by the World Bank.
An analysis of the report shows that these deductions accounted for approximately 41.1 per cent of total revenue within the period, raising fresh concerns over the country’s fiscal structure and resource allocation.
Revenue figures rose sharply from ₦17.08 trillion in 2023 to ₦29.45 trillion in 2024, before climbing further to ₦37.44 trillion in 2025, reflecting gains linked to recent economic reforms.
However, deductions from the Federation Account increased at an even faster pace—from ₦6.22 trillion in 2023 to ₦13.38 trillion in 2024, and ₦14.93 trillion in 2025.
The report attributes the surge largely to statutory transfers and cost-of-collection charges allocated to key Ministries, Departments, and Agencies (MDAs), including the Nigerian Upstream Petroleum Regulatory Commission, Nigerian Midstream and Downstream Petroleum Regulatory Authority, Nigeria Customs Service, and Nigerian National Petroleum Company Limited.
The Washington-based institution noted that by 2025, some of these agencies were receiving more funds through deductions than several Nigerian states generate in total revenue.
The issues
The growing scale of first-line deductions has emerged as a major concern for fiscal sustainability, as it significantly reduces the net revenue available for distribution to federal, state, and local governments.
The World Bank warned that the current framework effectively “pre-commits” a large share of national income, limiting transparency and weakening budgetary discipline.
This comes amid rising fiscal pressure, with Nigeria’s public debt estimated at $110.3 billion (about ₦159.2 trillion) as of December 31, 2025, alongside a persistent budget deficit of ₦16.9 trillion, equivalent to 3.8 per cent of GDP.
Despite increased revenues, capital expenditure declined from ₦5.5 trillion in 2024 to ₦4.5 trillion in 2025, with only 24 per cent of the capital budget implemented, raising concerns about the impact on infrastructure and economic growth.
What’s being said
The World Bank stated that while Nigeria’s revenue performance has improved—largely due to subsidy removal and foreign exchange reforms—the structure of deductions is undermining the gains.
“Large FAAC deductions to MDAs significantly reduce net revenues available to the federation,” the report noted.
It added that fixed-percentage deductions tied to gross revenue collections have created system where increased earnings automatically translate into higher transfers to agencies, limiting funds available for development.
Commenting on the development, development economist Aliyu Ilias described the trend as a structural flaw in Nigeria’s fiscal framework.
He warned that allowing MDAs to access revenue at source encourages off-budget spending and weakens legislative oversight.
“If you look at it generally, it’s wrong for MDAs to get revenue from the source… about 41 per cent is too high as a deduction,” he said.
What’s next
The World Bank has recommended a comprehensive overhaul of Nigeria’s revenue retention system, including:
Transitioning MDA funding to transparent budgetary appropriations subject to legislative approval.
Gradually reducing cost-of-collection rates and phasing out outdated statutory deductions.
Strengthening transparency through audited financial statements and independent oversight.
The report also suggests that implementing these reforms could significantly increase net FAAC allocations and improve funding for infrastructure, health, and education.
Bottom line
While Nigeria’s revenue profile has improved significantly in recent years, nearly half of its earnings are lost to pre-distribution deductions. Without structural reforms to the FAAC framework, analysts warn that rising revenues may continue to deliver limited impact on development and public service delivery.
