- FG to receive N27.19trn, States, LGs to get N13.79trn, N10.63trn
- Oil remains dominant contributor to Federation Account with N40.42trn
- Economists lament Naira depreciation, inflation
The Federal Government has projected that a total of N59trn will be shared among the Federal Government, state governments, and local governments from the federation account in 2025.
This comes as revenues are expected to rise due to continued policy changes, including the removal of the petrol subsidy and the adoption of a market-determined exchange rate.
According to the government’s medium-term fiscal outlook, the total amount expected to accrue to the federation account in 2025 stands at N58.79trn, with the bulk of the revenue, N51.61trn, coming from the Main Pool.
Other significant portions of the revenue include N6.95trn coming from the Value Added Tax Pool and N228.85bn from Electronic Money Transfer Levy.
Oil revenues remain a dominant contributor to the federation account, with projections estimating N40.42trn in oil revenues, accounting for approximately 69 per cent of the total federation account receipts and 78 percent of receipts into the Main Pool.
The revenue breakdown also includes N5.66trn from corporate tax, N3.21trn from customs duties, N677bn from special levies, N1.4trn from NLNG dividends, N31.93bn from solid minerals, and N5bn from the Nigeria Police Trust Fund levy.
“According to the government’s medium-term fiscal outlook, the total amount expected to accrue to the federation account in 2025 stands at N58.79trn, with the bulk of the revenue, N51.61trn, coming from the Main Pool.”
The revenue sharing formula for 2025 sees the Federal Government receiving N27.19trn from the Main Pool, while states and local governments are set to receive N13.79trn and N10.63trn, respectively.
Additionally, the Federal Government’s share from the VAT Pool and EMTL is projected to be N1.04trn and N34.33bn, respectively.
The state’s share from the VAT Pool is expected to be N3.47trn, while the local governments would be receiving N2.43trn from the same pool.
From the EMTL, states are set to get N114.42bn, while local governments will receive N80.1bn.
Findings by THE POINT showed that the increase in Federation Account revenue is a result of the government’s sustained fiscal reforms, including stricter collection of non-oil taxes, which is expected to provide a significant boost to the national coffers.
While the future remains uncertain in terms of global economic trends, the expected revenue growth reflects optimism for sustained government spending and investment in public services across all tiers of government in 2025.
This projected revenue sharing marks a pivotal moment in Nigeria’s economic trajectory, with the funds expected to be channeled into crucial infrastructure, public welfare, and development programs across the federation.
Economists lament Naira depreciation, inflation
Economic analysts have warned that while FAAC allocations to governments have risen in Naira terms, their real value has dropped in dollar terms due to Naira depreciation and inflation.
They urged the government to boost local content in public spending and focus on domestic production to reduce dependency on foreign currencies and imports.
They emphasize the need for coordinated fiscal and monetary policies to stabilize the economy and restore the purchasing power of government allocations.
Analyst and Head of Research at FSL Securities Limited, Victor Chiazor, in a chat raised concerns about the declining real value of Federal Account Allocation Committee disbursements to the three tiers of government, despite a rise in nominal allocations.
Chiazor emphasized that while allocations in Naira terms may appear to increase, the underlying issue is the erosion of purchasing power due to the continuous depreciation of the Naira.
According to Chiazor, “FAAC allocations to states and local governments will undoubtedly rise in Naira terms due to the weakening of the Naira against the dollar. However, the real concern is the declining real value of these allocations.”
He explained that the increase in nominal terms is largely negated by inflationary pressures and the Naira’s consistent depreciation, which reduces the purchasing power of the allocations.
“The rise in FAAC distributions may give the impression of growth, but in reality, these funds are now less effective in achieving the same outcomes as they did in previous years.
“The same projects and public services that were feasible with smaller allocations in the past are now much harder to achieve due to the Naira’s loss in value,” Chiazor explained.
He further highlighted the critical challenges facing state and local governments, which are struggling to execute infrastructure projects and deliver public services with FAAC funds that have lost value in real terms.
The impact of rising inflation, coupled with declining revenues in real terms, has compounded the financial strain on these governments.
“To address these challenges, it is essential for the government to boost its revenue streams and implement measures that will stabilize and strengthen the Naira against the dollar.
“A more stable currency will help restore the real value of FAAC allocations, ensuring that they can support the same level of public services and development projects as in previous years,” he added.
The Executive Vice Chairman of Hicap Securities Limited, David Adonri reacting to recent concerns about the real value of FAAC allocations to federal, state, and local governments, noted that while the Naira has weakened, many local costs have not escalated at the same rate, providing an opportunity for governments to optimize the increased allocations.
He added, “Although the Naira has depreciated heavily against the dollar, many domestic costs have not risen in the same proportion.
“Governments can still derive substantial benefits from the higher FAAC allocations if they focus their spending on activities with a greater reliance on local inputs.”
He emphasized that the key to minimizing the impact of currency depreciation lies in aligning government expenditure with sectors and projects that do not heavily depend on imported goods and services.
This approach, he said, would help ensure that the additional Naira allocations could still generate meaningful results without being excessively affected by the exchange rate.
How states shared N5.3trn FAAC allocation in 2024
The Federation Account Allocation Committee disbursed a total of N5.38 trillion to the 36 states and the Federal Capital Territory between January and December 2024, according to figures obtained by THE POINT
This amount represents an increase of about N1.46 trillion over the N3.92 trillion received by the states and the FCT in the previous year.
The states received a total of N412.09 billion in January; N406.96 billion in February; N454.70 billion in March and N428.24 billion in April.
A total of N463.04 billion got to them in May; N365.81 billion (lowest allocation for the year) in June before going up to N461.98 billion in July and N473.48 billion in August.
Others were as follows: September: N422.86 billion; October: N453.72 billion; November: N490.70 billion and December: N549.79 billion which was the highest allocation for the year.
These variations in allocation were influenced by overall revenue performance and the criteria used by FAAC to calculate the allocations.
In comparison, 2023 allocations were much lower, peaking at N396.21 billion in January and hitting a low of N259.50 billion in April.
The discrepancies highlight improved revenue generation in 2024, driven by the removal of fuel subsidies, increased oil sales and better earnings from non-oil sectors, including taxes and royalties.
Among the states, Delta received the highest allocation in March 2024 with N62.7 billion, followed by Rivers State with N41.7 billion, and Akwa Ibom State with N41.6 billion.
The oil-producing states benefit from the derivation principle, which ensures a part of oil revenue goes directly to Niger Delta states.
The increase in allocations is expected to assist state governments in enhancing infrastructure, education, healthcare and economic development. Stakeholders have urged responsible spending to ensure improvement in citizens’ quality of life.
A breakdown of the state by state allocations shows that Delta, Rivers, Akwa Ibom, Lagos and Bayelsa received the highest allocations
Delta got a total of N485bn; Rivers, N384bn; Akwa Ibom, N338bn; Lagos, N321bn and Bayelsa, N293bn.
Other top revenue allottees are: Kano, N166bn; Edo, N124bn; Ondo, N122bn; Anambra, N115bn and Oyo N113bn.
With a total of N5.38 trillion allocated in 2024, experts are optimistic about continued revenue growth into 2025.
Analysts believe that diversifying the economy and improving revenue collection methods could sustain or exceed last year’s accomplishments.
Looking at trends from 2022 to 2024, governmental allocations have significantly increased since June 2023, indicating more effective resource mobilization and equitable distribution of national revenues.
“FAAC allocations to states and local governments will undoubtedly rise in Naira terms due to the weakening of the Naira against the dollar. However, the real concern is the declining real value of these allocations.”
The Federal Government received N3.42 trillion in 2022, N3.96 trillion in 2023 and N4.65 trillion in 2024. Over these two years, it recorded a cumulative increase of 35.84 per cent.
State governments also benefited greatly during this period, receiving N2.75 trillion in 2022, followed by N3.92 trillion in 2023, and N5.38 trillion in 2024, therefore, the state governments received a 95.49 percent cumulative increase of FAAC allocations from 2022 to 2024.
The 774 local governments received N1.995 trillion in 2023 and N2.285 trillion in N3.994 trillion.
The LGAs experienced a 14.51 per cent increase in allocations in 2023 compared to the 2022 period, reflecting a steady rise in funds allocated to grassroots governance.
There was a 74.76 per cent increase between 2024 and 2023, which shows a significant boost in revenue directed towards local development efforts.
Interestingly, over the two years (2022 to 2024), LGAs recorded a cumulative increase of 100.26 per cent, doubling their allocation.
Beneficiaries of the 13 per cent Derivation Fund were not left out of the surge in FAAC allocations. In 2022, they received N601.049 billion, N454.677 billion in 2023 and N1.135.802 trillion in 2024.
Between 2022 and 2023, a 24.34 percent decrease was observed, reflecting possible fluctuations in oil revenue or derivation parameters. In 2023 and 2024, the allocation surged by 149.84 percent, marking a significant rebound and surpassing the 2022 figure.
From 2022 to 2024, the derivation fund recorded a cumulative growth of 88.93 per cent, emphasising the growing importance of the fund in fostering resource control.
The overall rise in FAAC allocations indicates the Federal Government’s commitment to fair revenue sharing across all levels of government. The increases in funding for states and LGAs reveal efforts to enhance service delivery and local governance.
The surge in these allocations also represents a hopeful trend in Nigeria’s federal revenue generation and distribution.
In the wake of fuel subsidy removal by President Bola Tinubu, the monthly disbursement to the three tiers of government by the Federal Account Allocation Committee increased significantly.
Based on the statutory sharing formula, the Federal Government receives 52.68 per cent of the total sum while the States and Local Government Areas receive 26.72 per cent and 20.6 per cent respectively.
The monthly allocation, particularly to states and local governments, is meant to fast track execution of viable economic and social infrastructure development projects at the grassroots.
The allocation, which is readily available monthly, is expected to cushion the impact of the economic crunch and promote people-oriented programmes to improve overall wellbeing of the people.
With the jettisoning of fuel subsidies which had cost the nation’s treasury over 10 billion dollar annually, more funds are, thus, made available by FAAC to the states.
