World Bank flags rising FAAC deductions, says  41% of N84tn revenue diverted in three years

The World Bank has raised concern over Nigeria’s fiscal structure, revealing that about 41 per cent of the N84 trillion generated into the Federation Account over the past three years was deducted at source before distribution to the three tiers of government.

The warning was contained in the Bank’s latest Nigeria Development Update, which highlighted how statutory deductions, cost of collection and mandatory transfers have significantly reduced the actual revenues available to federal, state and local governments.

According to the report, although total gross revenue into the Federation Account rose sharply between 2023 and early 2026 – largely driven by the removal of petrol subsidy and exchange rate unification – only about N49.5 trillion out of the N84 trillion generated was eventually shared among the three tiers of government.

A breakdown of the figures showed that gross revenues increased from N17.08 trillion in 2023 to N29.45 trillion in 2024 and further to N37.44 trillion in 2025, bringing cumulative earnings within the period to N83.97 trillion.

However, deductions from the Federation Account also surged significantly, rising from N6.22 trillion in 2023 to N13.38 trillion in 2024 and N14.93 trillion in 2025. This translated to a total deduction of N34.53 trillion over the three-year period.

The data indicates that about 41.1 per cent of total revenue was removed at source, thereby reducing the net amount available for public spending across the federation.

The World Bank noted that the scale of these deductions has continued to grow, accounting for 36.4 per cent of revenue in 2023, rising sharply to 45.4 per cent in 2024, before easing slightly to 39.9 per cent in 2025.

It further observed that while revenues recorded strong growth—expanding by 72.4 per cent between 2023 and 2024 and 27.1 per cent between 2024 and 2025—deductions grew at an even faster pace, jumping by 115.1 per cent between 2023 and 2024 and increasing by 11.6 per cent the following year.

The report attributed the surge largely to higher transfers to Ministries, Departments and Agencies (MDAs) that receive funding based on fixed proportions of gross revenue collections.

Key beneficiaries of these deductions include regulatory and revenue-generating agencies such as the Nigerian Upstream Petroleum Regulatory Commission, the Nigerian Midstream and Downstream Petroleum Regulatory Authority, the Nigeria Customs Service, and the Nigerian National Petroleum Company Limited.

The World Bank warned that the rising scale of first-line deductions is gradually eroding the fiscal capacity of governments at all levels, despite improvements in revenue generation following recent economic reforms.

“Large FAAC deductions to MDAs significantly reduce net revenues available to the federation,” the report stated, adding that the trend is altering the balance of fiscal resources across the country.

Further analysis showed that transfers to MDAs for cost of collection and refunds more than doubled within the period, rising from N1.88 trillion in 2023 to N4.18 trillion in 2025.

Refunds to subnational governments and other statutory obligations also surged sharply, increasing from N1.52 trillion in 2023 to N6.87 trillion in 2024 before moderating to N4.57 trillion in 2025.

The report noted that by 2025, the magnitude of these deductions had reached levels where some individual agencies were receiving more funds than several Nigerian 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 stated.

The development comes amid mounting fiscal pressure, widening budget deficits and rising public debt, which stood at about $110.3 billion, equivalent to N159.2 trillion as of December 31, 2025.