“First line charges” deductions is killing Nigeria 

…as FG agencies squandered N34 trillion in two years, experts flay  culture of corruption 

Adebayo Obajemu 

Nigeria may not after all be poor and cash strapped to be borrowing heavily to finance its budget given the disclose of how its agency frittered a humongous N34 trillion as First Line charges or deductions from source before the funds enter the Federation Account.

This realization may be responsibility for the Executive Order by President Bola Tinubu insisting that all earning and in flows of government first go into the Federal Account before deductions.

Before now, some federal agencies were permitted by law to keep a certain percentage of the earnings, and allocations to others removed before the Distributable pool is determined. Such agencies include Nigeria Customs Service, NCS, the erstwhile Federal Inland Services, the NNPCL, the NASS NPA, NIMAsA etc.Such deduction and withholding funds have constituted a huge drain in federal Account revenue as bureaucrats determine what comes in.

The World Bank has raised a disturbing  alarm  over Nigeria’s porous  fiscal framework, revealing that more than N34.53 trillion was diverted from federation revenue over the past two years through pre-distribution deductions.

In its latest Nigeria Development Update  gleaned from its website, the  bank noted that  although total federation revenue rose sharply to about N84 trillion between 2023 and 2025, about 41 per cent of the earnings were not remitted to  the Federation Account for distribution to the federal, state and local governments.

The report notes that gross revenue climbed  from N17.08 trillion in 2023 to an estimated N37.44 trillion in 2025. Deductions classified as “first-line charges”  according to the report also  moved  significantly, from N6.22 trillion to nearly N15 trillion within the same period, reducing the pool of funds available for distribution.

The Bank  said the development has  morphed into a paradox in which rising revenues have not translated into improved public spending capacity, as a substantial portion is automatically retained by certain agencies before allocation.

It explained that reforms such as the removal of petrol subsidy and foreign exchange adjustments bolstered nominal revenues, but much of the gains were offset by the structure of deductions tied to cost of collection and statutory transfers.

Agencies such as the Nigeria Customs Service, Nigerian National Petroleum Company Limited, and the Federal Inland Revenue Service account for a significant portion of these deductions. The report stated that their funding is based on fixed percentages of gross revenue, leading to higher allocations as revenues increase.

The Cause of Borrowing

The model  is said to be “pro-cyclical”, according to the World Bank, noting that  it operates outside the conventional budgetary framework and weakens legislative oversight. In some cases, allocations to individual agencies exceed the revenues of several states and even the budgets of key federal ministries.

The report also throws light  on the  impact on public finances, saying  a decline in capital expenditure from N5.5 trillion in 2024 to N4.5 trillion in 2025, with only about 25 per cent of the approved capital budget implemented. Meanwhile, the federal fiscal deficit remained elevated at N16.9 trillion, driven by debt servicing and recurrent expenditure.

The  Bank cautioned that the current arrangement distorts  fiscal transparency and accountability, as significant portions of public revenue are spent outside the standard appropriation process.

Throwing more light on the development, an economist at Covenant University, Yemisi Ayinde, noted that  the issue is a disturbing symptoms of deeper structural weaknesses in Nigeria’s public finance system.

According to him, the diversion of about 41 per cent of federation earnings through pre-distribution deductions points to “a broader framework of fiscal fragmentation, bureaucratic self-allocation, and weak legislative appropriation control,” resulting in what he described as a parallel fiscal system.

In his words, statutory revenue retention mechanisms, initially fashioned  as cost-recovery tools, have evolved into entrenched structures that distort resource allocation and weaken the link between macroeconomic reforms and real sector outcomes.

Ayinde  stated that  the trend has created a macro-fiscal paradox of rising revenues alongside shrinking discretionary fiscal space, leading to constrained capital formation, weaker fiscal multipliers and increased dominance of debt servicing over development expenditure.

He further noted that the arrangement raises concerns about transparency, accountability and legal compliance, warning that it could erode parliamentary control over public finances and weaken the social contract.

Institutionalized Corruption

Dr. Olufemi Omoyele, another economist said  “I prefer to look at it as institutionalized corruption. When the system allows you to spend public funds outside the legal and institutional framework, it’s corruption. Unfortunately, the current administration is not seeing it this way going by what the current minister of finance, Taiwo Oyedele said.

The key aspect of the allegations, according to Omoyele  was that these funds were not remitted to the federation account. “This is disturbing enough, no wonder  opposition figures, such as Peter Obi have highlighted it  as evidence of institutionalized corruption,” he noted.

Another academic, retired professor of management, Tanimola Adeoti told BH that “in a normal clime, the heads of the agencies responsible for non remittance to the federation account would have been behind bar.”

Also commenting, President of the Capital Markets Academics Association of Nigeria, Prof. Uche Uwaleke, described the World Bank’s findings as valid and consistent with concerns previously raised by local experts.

“The Federation Account has continued to experience leakages despite reforms,” he said, noting that measures, such as Executive Order 009 were steps in the right direction but insufficient.

Uwaleke called for stronger efforts to reduce the high cost of revenue collection, which he said is inconsistent with global best practices, adding that broader reforms are needed to plug persistent leakages.

Similarly, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, stressed the need for improved transparency and accountability across all tiers of government to ensure that increased revenues translate into better living conditions for citizens.

The report, titled “Nigeria’s Tomorrow Must Start Today: The Case for Early Childhood Development,” also highlighted longstanding weaknesses in Nigeria’s budget process, including the absence of a comprehensive organic budget law.

Mismanagement of Budget cycle

It noted that delays in budget approval—such as the late passage of the 2025 budget and the delay in approving the 2026 budget as of March 25, 2026—have reduced predictability for programme implementation.

According to the World Bank, weak coordination between the executive and legislative arms has led to frequent and often untracked changes to budget proposals, undermining macro-fiscal planning.

“These weaknesses have contributed to unrealistic revenue and capital expenditure projections that are consistently missed,” the report stated, adding that the extension of budget cycles has resulted in overlapping implementation and weakened financial reporting.

To address the challenges, the World Bank recommended a comprehensive overhaul of the revenue management framework, including channeling agency funding through the annual budget process and subjecting it to legislative approval.

It also called for a reduction in cost-of-collection charges and the elimination of fixed-percentage allocations, noting that such reforms would boost net revenues available for development.

The institution cautioned that failure to implement these measures could further constrain Nigeria’s fiscal space and undermine recent economic reforms.

Dr. Mohammed Abdullah, a political sociologist told BH that “the issue of N34 trillion is a scandal that will not go away anytime soon, and it’s a big dent on this administration. When you add this to reckless borrowing of this administration you begin to fear for the future of not only our children but our own generation. I can tell you that fear is spreading across the hearts of Nigerians—one that grows heavier with every new headline about rising debt. It is no longer just numbers on paper; it feels like a shadow stretching over the nation’s future. The reality is stark and unsettling: nearly 50% of Nigeria’s revenue is now used to service debt. That is not just unsustainable—it is suffocating.

“Behind these figures lies a deeper tragedy. Millions of Nigerians are trapped in what experts call “Multidimensional Poverty,” struggling daily for dignity and survival, while a privileged few continue to live in comfort, untouched by the hardship tightening around the nation. The contrast is painful, and the silence around it is even louder,” he said

Between 2023 and 2026, billions of dollars have been secured or proposed in foreign loans. On paper, it is a strategy of hope. But in the hearts of many Nigerians, it feels like a gamble with consequences yet to unfold.

“The numbers are staggering. A borrowing plan exceeding $21 billion, backed by the National Assembly, alongside additional billions in loans and grants, signal a government determined to keep spending and building. Another $6.9 billion facility follows closely behind. These are not just financial decisions; they are commitments that will echo into generations yet unborn.

“And so, the questions refuse to go away. Who will bear this burden? Who will repay these debts when the time comes? Will it not fall on ordinary Nigerians already stretched thin to carry the weight of decisions they never made?”