The World Bank has raised concerns over Nigeria’s fiscal framework, revealing that more than N34.53 trillion was diverted from federation revenue over the past three years through pre-distribution deductions.
In its latest Nigeria Development Update obtained from its website, the global lender disclosed that although total federation revenue rose sharply to about N84 trillion between 2023 and 2025, about 41 per cent of the earnings did not reach the Federation Account for distribution to the federal, state and local governments.
According to the report, gross revenue increased from N17.08 trillion in 2023 to an estimated N37.44 trillion in 2025. However, deductions classified as “first-line charges” also rose significantly, from N6.22 trillion to nearly N15 trillion within the same period, reducing the pool of funds available for distribution.
The World Bank noted that the development has created 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 boosted 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.
Describing the model as “pro-cyclical”, the Bretton Woods institution said 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 highlighted the impact on public finances, noting 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 World Bank warned that the current arrangement undermines fiscal transparency and accountability, as significant portions of public revenue are spent outside the standard appropriation process.
Providing expert insight, an economist at Covenant University, Yemisi Ayinde, said the issue reflects deeper structural weaknesses in Nigeria’s public finance system.
He explained that 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.
According to him, statutory revenue retention mechanisms, initially designed 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 added 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.
Also commenting, President of the Capital Markets Academics Association of Nigeria, 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.
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.
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