Facts and Fiction about FAAC Deductions

Postscript by Waziri Adio

In the last two weeks, some sections of the Nigerian press and social media have sizzled with stories and commentaries that the World Bank claimed a whopping N34 trillion was diverted or stolen from the Federation Account between 2023 and 2025. Some leading politicians, not unexpectedly, have piled in. But the World Bank could not have said what is being widely attributed to it, and in fact did not make that claim. What the bank did in its latest report on Nigeria is to underscore a point that some of us have been making for some time: the need to abandon the use of commissions and earmarks for funding some federal agencies.

There are other legitimate issues around the size, the content and the application of the deductions by the Federation Account Allocation Committee (FAAC). I have repeatedly written about some of these issues on this page and Agora Policy has always highlighted some of these issues in its regular dissection of monthly FAAC disbursements. I will restate some of them towards the end of this piece. However, it is important to state upfront that claiming that FAAC deductions are done before the revenues hit the Federation Account or that the growing deductions amount to diversions or stealing of federation revenues or that the money just vanishes amounts to taking too much liberty with words. And that is me being very charitable.

I will provide a quick background simply to illustrate why the claims falsely attributed to the World Bank do not add up. Section 162 of the 1999 Constitution mandates that all federation revenues must be paid into the Federation Account. All revenue-collection agencies have federation sub-accounts at the Central Bank of Nigeria (CBN). Post-TSA, it is thus unlikely that federation revenues would be paid into accounts outside of the CBN and not visible to FAAC. The only exception was the national oil company, which used to withhold 30% of PSC profit oil as its management fee and transfer another 30% of the same for the fund for frontier exploration. But this has been corrected by a February 2026 executive order.

Revenues accruing to the Federation Account are shared according to vertical and horizontal formulas recommended by the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) and passed into law by the National Assembly. FAAC, created by law and composed of representatives of federal and state governments, meets monthly to review accruals to and approve disbursements from the Federation Account. FAAC receives monthly reports from the revenue-collection agencies, the national oil company, and CBN. It deliberates on all these through its sub-committees and at plenary, then decides on who gets what according to extant sharing formulas, statutory obligations, and agreed commitments.

It is not all revenues that accrue to the Federation Account that are shared, and this is not new. What gets shared, called Distributable FAAC Revenue, is the difference between Gross FAAC Revenue and FAAC Deductions. The number and value of these deductions have been growing over time, but deductions do not happen before FAAC, they do not amount to diversions or a hidden spending system or stealing, and the portions deducted do not just evaporate into thin air.  All the deductions are discussed and approved at FAAC, where the commissioners of finance represent their states and the LGAs within their states (LGAs are not represented at FAAC).

For further context, the deductions at FAAC at the moment fall into five broad categories. The first category is costs of collection, which go to the Nigeria Revenue Service (NRS), the Nigeria Customs Service (NCS) and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). I have taken issues with this approach, but costs of collection are backed by the establishment acts of these agencies or related laws. The second category is the money put aside for the rainy day, which can be FAAC deductions saved in Excess Crude Account (ECA), non-oil savings account, or transferred to the Nigeria Sovereign Investment Agency (NSIA), our own sovereign wealth fund. A good insurance measure against revenue volatility, the savings are either backed by law or are products of political consensus.

The third category is transfers, which would include legislated or approved transfers to organisations such as RMAFC, the North East Development Commission (NEDC) and the Midstream and Downstream Gas Infrastructure Fund (MDGIF), which now accrues to the federation by virtue of EO9 and is currently being escrowed. The fourth category is for strategic projects that the FG and states agree that all tiers of government should jointly fund, usually recommended at the National Economic Council (NEC) and implemented by either the Federal Government or the states. Called interventions, this category includes provisions for arms or special allowances for the military and the still unclear Renewed Hope Ward Development Programme. The last category is for refunds, which mostly go to states for past underpayments. Details of all the deductions are published in the FAAC communique of each month. This is a public document.

Apart from the portions saved or sequestered, all these deductions go to state governments or federal agencies, and the beneficiaries only get their allocations after FAAC’s decision, not before. So, anyone saying federation revenues get deducted before FAAC needs to bring themselves up to date about how FAAC works. Also, the money does not vanish. Questions can, and should, be asked about the quantum and the application of these deductions, but all the deductions can be traced back to their ultimate beneficiaries. (The recalculation, which we have done before, will understandably show FG at a disadvantage.)

Analysis by Agora Policy shows that refunds (which go mostly to the states) constituted 54.1% of FAAC deductions in 2024; while interventions (shared almost evenly sometimes between FG and states) amounted to 24.7%; savings got 9.2%; costs of collection received 7.7%; and transfers got 4.3%. The picture changed, but only slightly, in 2025. The share of deductions that went to refunds and interventions reduced to 40.5% and 22.9% respectively; while savings increased to 19.7%, costs of collection to 10.2% and transfers to 6.7%. Based on the analysis of the absolute numbers by Agora Policy, 47.3% of deductions went to refunds alone in 2024 and 2025. This is not illegal or a diversion of federation revenues. It is FG paying for past infractions. Also, the allocations did not vanish. Most of the refunds, legitimately, went to states.

Now, back to the World Bank. The bank made two important points in its report and presentation. (By the way, I attended the launch of the report on 7^th April 2026 in Abuja and I have hard and soft copies of the report.) The first point made by the World Bank is that FAAC deductions have been growing in absolute and relative terms. According to the bank, FAAC deductions grew from N6.22 trillion in 2023 to N13.38 trillion in 2024, then to N14.93 trillion in 2025, which add up to N34.54 trillion in three years and account for N41.13% of the gross FAAC revenue of N83.97 trillion. The bank went further to show that the deductions are material, amounting to 2-3.6% of GDP in the years under review. Some people did some simple calculations and arrived at the N34.54 trillion deductions for three years constituting 41.13% of gross revenues, then concluded it was iron-cast evidence of crime. As if that was not bad enough, they falsely attributed the accusation to the World Bank. This is extreme bad form.  

The second point made by the World Bank is about the huge sums allocated to some federal agencies as collection costs, earmarks and transfers, which rose from N1.88 trillion in 2023 to N2.63 trillion in 2024, then to N4.18 trillion in 2025, which can be attributed more to devaluation and not to extra effort (as some of these agencies receive a fixed percentage of the revenue they collect on behalf of the federation). The bank also shows that the average FAAC allocations to these few MDAs are higher than the average FAAC allocations to the 36 states and the total FAAC allocations to these few MDAs dwarfed the individual budget allocations to “major social and growth-oriented federal ministries” such as the ministries of education, health, and works. The bank acknowledges EO9 is a necessary corrective measure in this regard, but calls on government to take the reform further by reviewing cost-of-collection and earmark arrangements for some agencies like NRS and RMAFC (I once flagged on this page how based on a new earmark, RMAFC’s budget rose from N3.27 billion in 2024 to N105.14 billion in 2025, an increase of 3115%). These are important points that do not need to be polluted with manufactured attributions.

I will conclude with some old and new points about FAAC deductions. The first is the need to end special funding arrangements (collection costs, earmarks, retained IGRs) of some of the agencies that the World Bank mentioned and other MDAs, especially GOEs. The special funding arrangement for these super agencies inexorably leads to misallocation, distraction, capture and waste (one agency budgeted N50 billion for ‘welfare’ as a one-line item in 2024). We should fund all government agencies well, but according to their established needs, not with a fixed percentage of revenues collected; and all MDAs should come under one comprehensive and fully disaggregated budget passed at the same time. Based on a FEC approval, Mr. Olawale Edun, Minister of Finance until last week, was working on this and other ways to optimise government revenue. It is important to take this forward, which may include some interim and lasting measures like changing some laws.

Two, some deductions, such as savings, should be encouraged and be further formalised. There is a challenge in Section 162 of the constitution, even when the operators find a way around it. A constitutional amendment will be necessary. We need to have a structured and unincumbered mechanism for saving in moments of boom in preparation for the inevitable bust of commodity cycle and for the coming generation. The third issue is the need for proper transparency and accountability measures on the interventions deemed as national and strategic (including security) that are funded through FAAC and allocated to FG and states. It is possible they are being faithfully executed by all parties, but it is also possible they are not. Following the money and demanding accountability are more useful than just screaming diversion or theft for headlines or for politics. Four and related, the approval process for these interventions, especially at NEC, needs to be more robust and transparently communicated.

My last point is about how refunds have become an albatross for the FG. Many may not know this, but Federal Government’s share of FAAC is plummeting at a time increasing revenue, and it could have been worse but for the magnanimity of the states. FAAC refunds explain this anomaly of FG getting a shrinking share of a growing pie. This administration is paying for the bad behaviour of past administrations which wrongly monopolised federation revenues (cue: NLNG dividends) and used money belonging to the collective to meet its own obligations (like paying off what was largely its own debt). In the overall interest of the country, we need a central government that is buoyant enough to fulfil its responsibilities and come to the aid of the sub-national governments, if need be. While it is necessary to improve the headroom for the central government, it will also be important for the FG to stop doing what could further emasculate it in the form of refunds down the line.