Nigeria’s public finances are under renewed scrutiny as the World Bank warns that a growing portion of federation revenues is consumed by statutory and operational deductions before reaching federal, state, and local governments. This trend is raising concerns over fiscal sustainability despite stronger overall revenue inflows.
In 2025, more than 39 percent of revenues—about N14.94 trillion—was absorbed by deductions, limiting the cash available for public services while borrowing costs remain high. Presenting the April 2026 edition of the Nigeria Development Update in Abuja, Fiseha Gebregziabher explained that although gross revenues increased significantly, deductions for various purposes by different institutions also rose, reducing the net funds distributable to states and local governments.
The report highlighted that deductions to key federal ministries, departments, and agencies—including the Nigerian Revenue Service, Nigeria Customs Service, and the Nigerian Upstream Petroleum Regulatory Commission—more than doubled from N1.9 trillion in 2023 to over N4.2 trillion in 2025, representing roughly 1 percent of GDP. Many of these deductions are structured as fixed percentages of gross revenue, meaning revenue windfalls automatically result in higher pre-committed transfers, compressing fiscal space for the three tiers of government.
The World Bank noted that President Bola Tinubu’s Executive Order 9, issued in February 2026, suspending certain oil-sector deductions and mandating direct cash remittances, represents a major step toward improving transparency in the Federation Account. This reform suspended three major deductions: the 30 percent Frontier Exploration Fund charge, the 30 percent management fee on profit oil payable to NNPC, and transfers of gas flare penalties to the Midstream and Downstream Gas Infrastructure Fund. The move is expected to generate an additional 0.4 percent of GDP for the federation.
The World Bank urged further rationalisation, recommending that revenue agencies and regulatory bodies be funded through explicit budget appropriations, subject to legislative approval, performance oversight, and audits. Gradually lowering fixed cost-of-collection rates and phasing out obsolete earmarked deductions would increase net FAAC distributions and reinforce transparency and fiscal discipline.
Wale Edun confirmed that the executive order is being implemented to ensure that revenues flow into the federation account for proper distribution. He explained that the excess fees and deductions previously diverted to agencies like NNPC are now being redirected to the federation account. Edun added that a committee is reviewing all revenue remittances to guarantee smooth and efficient transfers, reinforcing fiscal efficiency at a time of higher revenues.
