• Alleges distortion of fiscal federalism
• Advocates mandatory 10% savings into Sovereign Wealth Fund before distribution
James Emejo in Abuja
Chairman, Alliance for Economic Research and Ethics (AERE), Mr. Dele Oye, yesterday accused the federal government of retaining about N1.1 trillion from the federation account before disbursing the May 2026 Federation Account Allocation Committee (FAAC) revenue to other tiers of government.
Oye described the development as a major distortion of fiscal federalism, and stated that the federal authorities effectively appropriated 32 per cent of total federation revenue at source before sharing the balance among the three tiers of government.
He said FAAC records showed that although the federation generated gross revenue of N3.40 trillion in May 2026, only N2.30 trillion, representing about 68 per cent of the total, was eventually distributed to the federal, states and local governments.
He said the remaining N1.10 trillion was deducted upfront through various intervention and statutory obligations, thereby reducing the amount available to subnational governments.
Oye said the scale of deductions further entrenched fiscal centralisation and weakened the financial capacity of states and local government councils.
In a statement, he stated, “Of the gross revenue, only N2.30 trillion (68 per cent) was distributed among the three tiers of government, while N1.10 trillion (32 per cent) was deducted at source.
“This high deduction rate, driven primarily by intervention funds, effectively recentralises fiscal resources and constrains subnational fiscal capacity.”
He also proposed a mandatory savings threshold of between five and 10 per cent of gross federation revenue to be channelled into the Sovereign Wealth Fund before distribution.
The economist said the federal government’s influence over federation revenues extended beyond its direct allocation from the distributable pool, given its control over the administration of intervention funds and other deductions.
He stated that while the federal government officially received N818.68 billion, representing 35.4 per cent of distributable revenue, its effective fiscal control was considerably higher when the deducted funds were taken into account.
Oye said, “The federal government’s direct allocation of 35.4 per cent represents only part of its fiscal command. When combined with its administrative control over the N1.10 trillion in deductions, particularly the substantial intervention funds, the central government effectively manages a significantly larger share of the nation’s gross revenue.”
Data from the May FAAC disbursement showed that states received N759.14 billion or 33 per cent of the distributable pool, while the 774 local government councils shared N534.28 billion, representing 23.2 per cent. Oil-producing states also received N188.13 billion as 13 per cent derivation revenue.
Oye particularly drew attention to the N500 billion National Security Emergency Fund, which accounted for the largest component of the deductions.
He said the allocation underscored the enormous fiscal burden posed by insecurity, stating that the security fund alone is nearly equivalent to the total amount shared by all local governments in the country.
He said the vertical allocation of the N2.30 trillion distributable revenue “underscores structural imbalances in Nigeria’s fiscal federalism”, adding that “the distribution formula continues to heavily favour the centre, even before accounting for federal control over pre-distribution deductions”.
Despite the apparent month-on-month revenue growth of 6.9 per cent, Oye warned that Nigeria’s fiscal position remained fragile, pointing to major budget shortfalls across key revenue streams, including a 51 per cent underperformance in mineral revenue and declining Value Added Tax (VAT) collections.
He said the eight per cent drop in VAT receipts was particularly concerning as it signalled weakening consumer demand and reduced household purchasing power amid ongoing inflationary pressures.
The report also criticised the federation’s low savings culture. It said only N50 billion, or 1.5 percent of gross revenue, was saved during the period, a level it described as inadequate for building buffers against future economic shocks.
Oye said mineral revenues underperformed budget expectations by as much as 51 per cent, while VAT collections declined by eight per cent during the period.
The group called for sweeping reforms to strengthen transparency, accountability, and fiscal sustainability.
Among other recommendations, the group urged the federal government to place statutory limits on pre-distribution deductions from federation revenue and subject intervention funds to stricter legislative oversight.
Oye said, “The federal government must institutionalise a cap on pre-distribution deductions as a percentage of gross revenue. Opaque intervention funds should transition into regular budgetary appropriations subject to National Assembly oversight.”
He also advocated a review of the existing revenue-sharing formula to boost allocations to states and local governments in line with their constitutional responsibilities.
According to him, strengthening subnational finances has become imperative if governments at those levels are to effectively deliver infrastructure, social services, and economic development programmes.
He urged authorities to adopt more realistic and data-driven revenue projections to address recurring budget shortfalls.
Oye maintained that while the latest FAAC figures reflected nominal revenue growth, they exposed deeper structural weaknesses in the country’s fiscal framework.
He said, “The concentration of fiscal resources at the centre, coupled with the opacity of intervention funds, undermines the federalist principles upon which Nigeria’s fiscal architecture is built.
“Sustainable fiscal federalism requires transparent, equitable and accountable management of the nation’s financial resources.”
Oye added, “The significant shortfalls indicate systemic flaws in budget revenue forecasting. Adopting more conservative, data-driven revenue projections is essential.
“The May 2026 FAAC disbursement data reveals a federation navigating complex fiscal dynamics. While nominal revenue growth of 6.9 percent suggests positive momentum, the underlying structural issues, high deduction rates, substantial budget shortfalls, and minimal savings, demand immediate policy attention.
“The concentration of fiscal resources at the centre, coupled with the opacity of intervention funds, undermines the federalist principles upon which Nigeria’s fiscal architecture is built. Sustainable fiscal federalism requires transparent, equitable, and accountable management of the nation’s financial resources.”
