Nigeria’s revenue boom masks a leak as deductions swallow 39% – World Bank

Nigeria’s public finances are facing renewed scrutiny after the World Bank warned that a growing share of federation revenues is being absorbed by deductions before funds reach federal, state and local governments, raising fresh concerns about fiscal sustainability despite stronger inflows.

More than 39 percent of revenues generated in 2025 were consumed by statutory and operational deductions limiting the cash available for public services at a time when borrowing costs remain elevated and fiscal pressures are intensifying.

The deductions, which gulped N14.94 trillion (39 percent) of revenues before they could be shared by the Federation Account Allocation Committee (FAAC) in 2025 according to the World Bank, have continued to place unprecedented pressure on the tiers of government, leaving them with a shrinking pool of resources to address critical infrastructure and social welfare needs.

Presenting the April 2026 edition of ‘Nigeria Development Update’ in Abuja on Tuesday, Fiseha Gebregziabher, the World Bank’s lead economist said that while the gross revenues at the Federation have increased significantly, deductions for different purposes and by different institutions, also increased in 2025.

He said that FAAC first-line deductions to federal Ministries, Departments and Agencies have increased sharply, reducing net distributable revenues and altering the balance of fiscal resources across the federation.

The report showed that the combined FAAC deductions to key MDAs—including Nigerian Revenue Service (NRS), Nigeria Customs Service (NCS), Nigerian Upstream Petroleum Regulatory Commission among others more than doubled from about N1.9 trillion in 2023 to over N4.2 trillion (1 percent of GDP) in 2025.

Gebregziabher said that while revenue administration has strengthened, the bulk of the increase reflects higher nominal revenues following the removal of the FX and PMS subsidies.

He said, “Because many deductions are structured as fixed percentages of gross collections, the revenue windfall automatically translates into proportionally larger transfers to MDAs. In 2025, total FAAC transfers to these MDAs exceeded the revenues of many Nigerian states, and several individual agencies received more than the average State’s total revenue.

“These FAAC deductions to MDAs also surpassed budget allocations to major social and growth-oriented Federal ministries. Because many of these charges are applied before revenue distribution, a growing share of federation resources is effectively pre-committed, reducing transparency and compressing fiscal space for the three tiers of government.”

The Bank noted the executive order 9 signed by President Tinubu in February 2026, suspending selected oil-sector deductions and mandating direct cash remittances, stating that it represents a major step toward restoring revenue transparency and strengthening the Federation Account.

The reform suspended three significant deductions including the 30 percent Frontier Exploration Fund charge from PSCs (estimated at N453.5 billion in 2025); the 30 percent management fee on profit oil and gas payable to NNPCL (at N453.5 billion in 2025); and the transfer of gas flare penalties to the Midstream and Downstream Gas Infrastructure Fund (at N591.8 billion in 2025).

It stated that streamlining these deductions is expected to generate additional revenues of about 0.4 percent of GDP for the Federation. It added that further consolidation of recent gains will require rationalizing remaining cost-of-collection arrangements and transitioning MDA financing to transparent budget appropriations.

“Together, these measures improve revenue collection and could help reinforce the transparency of oil revenues.

Further consolidation of recent gains will require rationalising remaining cost-of-collection arrangements and transitioning MDA financing to transparent budget appropriations.

“Several MDAs continue to be financed through fixed percentages of gross revenues—such as 4 percent to NRS from non-oil revenues and royalties, 7 percent to NCS from customs revenues, 0.5 percent to RAMFAC from non-oil revenues, and 3 percent to NEDC from VAT—rates that are high compared to other peer countries.

“These ad valorem arrangements create pro-cyclical funding dynamics and directly reduce the net revenues available for development spending. Transitioning to a model in which revenue agencies and regulatory bodies are funded through explicit budget appropriations—subject to annual legislative approval, performance oversight, and audit—would strengthen fiscal discipline and accountability.

“Gradually lowering excessive cost-of-collection rates and phasing out earmarked deductions where mandates have lapsed would increase net FAAC distributions to the federation. Complementary measures, including the publication of audited financial statements and strengthened independent oversight, would further reinforce transparency and confidence in the revenue-sharing system,” he added.

Also commenting on the high deductions, Wale Edun, minister of finance and coordinating minister of the economy said that the executive order which is already being implemented, essentially is ensuring that the revenues that should be flowing into the federation account to be shared by all levels of government under the law, actually flows in and is not deducted somewhere along the line.

He explained that efforts were being made to reassess the cost of collection by revenue collecting Agencies. He emphasised that the move is not intended to deny an efficient agency what it needs to run properly, and efficiently to deliver the service but the excess, the surplus that belongs to the government. “And so we’re shining a light on that.”

Edun said, “There is a committee, I have the honor of chairing that committee, and we have immediately gone out and the 30 percent that was flowing first of all as a management fee is now flowing into the federation account instead of to NNPC. Likewise, the frontier fund deduction is flowing straight to the federation account. And similarly, the gas flare penalty.

“And the committee will come out with even more definitive guidelines to ensure that we have a very clear cut and a very smooth remittance of the funds that are due to the federation account without any extraneous deductions along the way. And of course, at a time when the revenues are even higher, it’s even more important that we do have that efficiency. That all-important policy is being implemented.”