Alliance Economic Research and Ethics Ltd/GTE has blamed ‘structural imbalances,’ following decision by the Federal Government to approve only 68 per cent of the revenue disbursed by the Federation Account Allocation Committee (FAAC) in its May 2026 allocations to the three tiers of government.

Dele Ore

According to the Chairman of the body, Mr Dele Ore, in a statement, while reacting to the May revenue disbursement announced by the FAAC, last week, only N2.3 trillion was shared among the three tiers out of the N4.40 trillion declared as revenue generated for the month, with the balance of N1.1 trillion, representing about 32 per cent of the gross revenue, deducted at source through various statutory and administrative charges before disbursement.

Mr Oye further argued that the vertical allocation of the N2.3 trillion distributable revenue ‘underscores structural imbalances in Nigeria’s fiscal federalism,’ adding that ‘the distribution formula continues to heavily favor the centre, even before accounting for federal control over pre-distribution deductions.’

Oye noted that intervention funds accounted for the largest portion of deductions, particularly the N500 billion National Security Emergency Fund, which he said reflects the growing fiscal pressure of insecurity on national resources.

He added that the security allocation alone was almost equivalent to what all 774 local government areas collectively received from the federation account.

The report also showed that under the final allocation structure, the Federal Government received N818.68 billion (35.4 per cent), states received N759.14 billion (33 per cent) and local governments got N534.28 billion (23.2 per cent), while oil-producing states received N188.13 billion as derivation.

Despite the apparent month-on-month revenue growth of 6.9 per cent, Oye warned that Nigeria’s fiscal position remains fragile, pointing to major budget shortfalls across key revenue streams, including a 51 per cent underperformance in mineral revenue and declining Value Added Tax (VAT) collections.

He said the 8 per cent drop in value added tax (VAT) receipts was particularly concerning as it signaled weakening consumer demand and reduced household purchasing power amid ongoing inflationary pressures.

The report also criticised the federation’s low savings culture, noting that only N50 billion, or 1.5 per cent of gross revenue, was saved during the period, a level it described as inadequate for building buffers against future economic shocks.

The Alliance for Economic Research and Ethics LTD/GTE, therefore, called for urgent reforms, including stricter limits on pre-distribution deductions, greater transparency in intervention spending, and a review of the revenue-sharing formula to strengthen the fiscal capacity of subnational governments.

“The Federation Account Allocation Committee (FAAC) disbursement for May 2026, concluded in June 2026, reveals a complex fiscal picture characterized by nominal revenue growth juxtaposed against significant structural vulnerabilities.

“Gross revenue reached N3.40 trillion, a 6.9% month-on-month increase from April 2026.

“Of the gross revenue, only N2.3 trillion (68%) was distributed among the three tiers of government, while N1.1 trillion (32%) was deducted at the source.

“This high deduction rate, driven primarily by intervention funds, effectively realigns fiscal resources and constrains subnational fiscal capacity.

“The federal government’s direct allocation of 35.4 per cent represents only part of its fiscal command. When combined with its administrative control over the N1.1 trillion in deductions, particularly the substantial intervention funds, the central government effectively manages a significantly larger share of the nation’s gross revenue.

“Total deductions amounted to N1.10 trillion, representing 32 per cent of gross revenue. While this marks a 7 per cent decline compared to April 2026, the absolute magnitude remains structurally significant.”

On recommendations, Oye said the May 2026 FAAC disbursement highlights the urgent need for comprehensive fiscal reform as the current trajectory is fiscally unsustainable and undermines equitable federalism principles.

“The federal government must institutionalise a cap on pre-distribution deductions as a percentage of gross revenue. Opaque intervention funds should transition into regular budgetary appropriations subject to National Assembly oversight.

“To enhance subnational fiscal viability, the vertical allocation formula requires structural revision. Increasing the share allocated to States and Local Governments would better align resources with constitutional responsibilities.

“The federation must legally mandate a minimum savings threshold (e.g., 5-10% of gross revenue) into the Sovereign Wealth Fund prior to distribution.

“The significant shortfalls indicate systemic flaws in budget revenue forecasting. Adopting more conservative, data-driven revenue projections is essential.

“The May 2026 FAAC disbursement data reveals a federation navigating complex fiscal dynamics. While nominal revenue growth of 6.9% suggests positive momentum, the underlying structural issues, high deduction rates, substantial budget shortfalls, and minimal savings, demand immediate policy attention.

“The concentration of fiscal resources at the center, coupled with the opacity of intervention funds, undermines the federalist principles upon which Nigeria’s fiscal architecture is built. Sustainable fiscal federalism requires transparent, equitable, and accountable management of the nation’s financial resources.”