Nigeria’s federation revenues rose to N84tn over the past three years, but 41 per cent of these earnings was lost to pre-distribution deductions, significantly shrinking what is eventually shared among the three tiers of government, findings by the Newsmen have revealed.
Latest fiscal data obtained from the World Bank’s Nigeria Development Update, analysed by our correspondent on Tuesday, showed that total gross revenues climbed from N17.08tn in 2023 to N29.45tn in 2024 and N37.44tn in 2025, bringing cumulative earnings to N83.97tn within the period.
However, deductions from the Federation Account also surged from N6.22tn in 2023 to N13.38tn in 2024 and N14.93tn in 2025, amounting to a combined N34.53tn over the three years.
This means that about 41.1 per cent of total revenues was deducted at source before distribution to the three tiers of government, reducing their share.
The development comes amid deepening fiscal pressure, a widening budget deficit, and a growing appetite for borrowing, which has significantly pushed Nigeria’s public debt to $110.3bn, equivalent to about N159.2tn as of 31 December 2025, raising concerns about sustainability and debt servicing capacity.
The World Bank in the report said this growing wave of first-line deductions from the Federation Account is quietly eroding the revenues available to federal, state, and local governments, despite a surge in overall earnings driven by recent economic reforms.
In its latest Nigeria Development Update titled ‘Nigeria’s Tomorrow Must Start Today: The Case for Early Childhood Development’, the global lender warned that allocations to key government agencies now consume a significant portion of national revenues before they are even shared, effectively shrinking the fiscal space available for development.
A breakdown further shows that deductions accounted for 36.4 per cent of revenue in 2023, rose sharply to 45.4 per cent in 2024, and moderated slightly to 39.9 per cent in 2025.
The data indicates that while revenues grew 72.4 per cent between 2023 and 2024, and 27.1 per cent between 2024 and 2025, deductions increased even faster, jumping 115.1 per cent between 2023 and 2024, and 11.6 per cent between 2024 and 2025.
The increase in deductions was largely driven by higher transfers to Ministries, Departments and Agencies funded through fixed percentages of gross revenue collections.
These agencies include the Nigerian Upstream Petroleum Regulatory Commission, Nigerian Midstream and Downstream Petroleum Regulatory Authority, Nigeria Customs Service, Nigerian National Petroleum Company Limited, and others.
The report noted that by 2025, some of these deductions had grown so large that individual agencies were receiving more funds than several Nigerian states.
The World Bank noted that while Nigeria’s revenue performance has improved following the removal of the petrol subsidy and foreign exchange reforms, the structure of deductions means that much of the gains are automatically diverted.
The report stated, “Large FAAC deductions to MDAs significantly reduce net revenues available to the federation.
“FAAC first-line deductions to federal MDAs have increased sharply, reducing net distributable revenues and altering the balance of fiscal resources across the federation.”
An analysis of the data showed that total deductions rose from N6.22tn in 2023 to N13.38tn in 2024, representing a sharp 115 per cent increase, before climbing further to N14.93tn in 2025, an additional 11.6 per cent rise.
Within this, transfers to MDAs for the cost of collection and refunds surged from N1.88tn in 2023 to N4.18tn in 2025, more than doubling over the period.
Refunds to subnational governments and other statutory obligations also spiked significantly, jumping from N1.52tn in 2023 to N6.87tn in 2024, before moderating to N4.57tn in 2025.
The report stressed that by 2025, the scale of these deductions had become so large that some agencies were receiving more funds than entire states.
“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,” the World Bank noted. “These deductions also surpassed budget allocations to major social and growth-orientated federal ministries.”
The rising deductions also surpassed federal spending on key social and economic sectors, further limiting the government’s ability to fund infrastructure and development projects.
A closer look at the composition of deductions showed that refunds to subnational governments and statutory transfers accounted for a large share, alongside cost-of-collection charges by revenue-generating agencies.
For instance, refunds rose sharply from N1.52tn in 2023 to N6.87tn in 2024, before moderating to N4.57tn in 2025, while cost-of-collection transfers increased steadily to N4.18tn in 2025.
The Washington-based institution warned that because these deductions are applied before revenues are shared by the Federation Account Allocation Committee, a large portion of national income is effectively “pre-committed”.
“A growing share of federation resources is effectively pre-committed, reducing transparency and compressing fiscal space for the three tiers of government,” it added.
The report comes amid a broader improvement in Nigeria’s revenue profile, particularly from non-oil sources.
Data showed that aggregate revenues across states rose from N12.1tn in 2024 to N15.4tn in 2025, driven largely by stronger FAAC inflows linked to higher tax collections and gains from subsidy reforms.
However, the World Bank cautioned that these gains are being undermined by rising deductions and spending pressures at the federal level.
The report explained, “While revenue administration has strengthened, the bulk of the increase reflects higher nominal revenues following the removal of the FX and PMS subsidies. Because many deductions are structured as fixed percentages of gross collections, the revenue windfall automatically translated 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-orientated 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.”
Despite higher revenues, the Federal Government’s fiscal deficit remained elevated at about 3.8 per cent of GDP in 2025, equivalent to N16.9tn, as increased recurrent expenditure offset revenue growth.
Total government spending rose to about N29.7tn, driven by higher personnel costs, rising debt servicing, and large off-budget deductions for special interventions, including N1.1tn for military-related spending and N900bn for the Renewed Hope development programme.