Nigeria’s federation revenues totalled N83.97tn between 2023 and 2025, but pre-distribution deductions consumed 41 per cent of the earnings before a kobo reached any tier of government, according to fresh fiscal data from the World Bank’s Nigeria Development Update.
The figures show gross revenues climbing steadily from N17.08tn in 2023 to N29.45tn in 2024, and N37.44tn in 2025. Over the same period, deductions from the Federation Account surged from N6.22tn to N13.38tn and N14.93tn respectively, amounting to a combined N34.53tn stripped out at source.
While revenues grew 72.4 per cent between 2023 and 2024, deductions rose even faster — jumping 115.1 per cent within the same window — before moderating to an 11.6 per cent increase in 2025. As a share of total revenue, deductions stood at 36.4 per cent in 2023, peaked at 45.4 per cent in 2024, and eased slightly to 39.9 per cent in 2025.
The World Bank, in its latest update titled *Nigeria’s Tomorrow Must Start Today: The Case for Early Childhood Development*, warned that the surge in first-line deductions is quietly eroding distributable revenues despite an overall improvement in earnings driven by the removal of the petrol subsidy and foreign exchange reforms.
“Large FAAC deductions to MDAs significantly reduce net revenues available to the federation,” the report stated, adding that allocations to key government agencies now consume a significant portion of national revenues before they are shared, effectively shrinking fiscal space for federal, state, and local governments.
The increase was largely driven by higher transfers to Ministries, Departments and Agencies funded through fixed percentages of gross collections. These include the Nigerian Upstream Petroleum Regulatory Commission, the Nigerian Midstream and Downstream Petroleum Regulatory Authority, the Nigeria Customs Service, and the Nigerian National Petroleum Company Limited, among others.
By 2025, the report noted, some individual agencies were receiving more funds than the total revenues of several Nigerian states, and their combined deductions surpassed budget allocations to major social and growth-oriented federal ministries.
Cost-of-collection transfers — charges levied by revenue-generating agencies — more than doubled, rising from N1.88tn in 2023 to N4.18tn in 2025. Refunds to subnational governments and other statutory obligations spiked from N1.52tn in 2023 to N6.87tn in 2024 before moderating to N4.57tn in 2025.
The World Bank cautioned that because many of these deductions are structured as fixed percentages of gross collections, the revenue windfall from recent reforms has automatically translated into proportionally larger transfers to MDAs — leaving less for the tiers of government that depend on FAAC allocations for development spending.
“A growing share of federation resources is effectively pre-committed, reducing transparency and compressing fiscal space for the three tiers of government,” it warned.
The fiscal pressure is unfolding against a backdrop of mounting debt. Nigeria’s public debt stood at $110.3bn — approximately N159.2tn — as of December 31, 2025, raising fresh concerns about debt sustainability and servicing capacity. The Federal Government’s fiscal deficit remained elevated at roughly 3.8 per cent of GDP, equivalent to N16.9tn in 2025, as recurrent expenditure growth offset revenue gains.
Total government spending climbed to about N29.7tn, driven by higher personnel costs, rising debt servicing obligations, and large off-budget deductions including N1.1tn for military-related spending and N900bn for the Renewed Hope development programme. Capital expenditure fell from N5.5tn in 2024 to N4.5tn in 2025, with only 24 per cent of the approved capital budget implemented.
Development economist and Chief Executive of CSA Advisory, Aliyu Ilias, described the deduction structure as a fundamental flaw in Nigeria’s public finance management.
“I think it’s wrong for MDAs to get revenue from the source, and I can also tell that a lot of projects are being done that are not captured in the budget,” he said. “Forty-one per cent is too high as a deduction from the source.”
Ilias warned that the system has effectively created a parallel spending structure operating outside legislative appropriation and proper fiscal oversight. He expressed doubt, however, that the federal government would embrace full reform, noting that entrenched institutional interests would likely resist any restructuring.
“The government carries out some activities even before they consider others. They see it as their own priority and their decision,” he said.
To address the problem, the World Bank recommended transitioning all MDA financing from automatic percentage-based deductions to explicit budget appropriations subject to annual legislative approval, performance oversight, and audit. It also called for a gradual reduction in cost-of-collection rates — particularly where mandates have lapsed — and for revenue agencies to publish audited financial statements.
“Gradually lowering excessive cost-of-collection rates and phasing out earmarked deductions where mandates have lapsed would increase net FAAC distributions to the federation,” the report said.
The global lender further flagged structural weaknesses in Nigeria’s budgeting process, warning that the absence of a comprehensive organic budget law has weakened fiscal formulation, led to delays, and reduced predictability in programme execution.
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