The conversation surrounding the latest Nigeria Development Update (NDU) has indeed been intense with many observers and media outlets pointing to ‘hidden spending’ and ‘revenue-diversion.’ In reality, however, it is more of a case of misinterpretation of how the federation account is managed; BENJAMIN UMUTEME writes.
When the World Bank released its latest Nigeria Development Update (NDU), it was received with mixed feelings. The report highlighted significant pre-distribution deductions from federation revenue, totalling around N34.53 trillion (41% of N84 trillion gross revenue from 2023-2025), which limited funds available for federal, state, and local governments despite revenue growth from reforms like the removal of subsidies.
It described these automatic deductions – covering cost of collection, statutory transfers, and agency retention – as creating a “paradox” where higher revenues do not translate to better public spending, with some agencies receiving more than many states’ individual budgets.
It explained that this happens through pre-distribution deductions such as cost‑of‑collection charges to agencies (NNPC, NRS, Customs, etc.); security‑related and security‑linked payments; statutory transfers, savings, and other “agency remittances,” often with thin public transparency on composition and use.
Although the NDU did not explicitly label these as “hidden spending” or “revenue diversion,” it flagged the system for diverting substantial portions before FAAC distribution, urging reforms like shifting to transparent budget appropriations and lowering collection costs to boost net federation funds.
However, media interpretations amplified the concerns as “hidden spending diverting N34.53trn.”
FG’s swift response
The government, while acknowledging the concerns, stated that the deductions were legitimate FAAC items (e.g., security, refunds, sub-national transfers).
The government’s response had been emphatic: it insisted that the World Bank did not say there was a diversion nor did it say public money was disappearing.
The Minister of Finance and Coordinating Minister for the Economy, Taiwo Oyedele, said media accounts had “misrepresented the findings of the latest Nigeria Development Update,” stressing that critics had wrongly portrayed FAAC deductions as waste or missing funds.
He said, “FAAC deductions, as presented in the World Bank report, include: Statutory transfers, savings and investments, security-related expenditures, cost-of-collection charges, refunds to Ministries, Departments and Agencies (MDAs), transfers and interventions benefiting sub-national governments.”
“It is important to emphasise that refunds and transfers to states and other tiers of the government are not leakages. They represent legitimate fiscal flows, including repayments of obligations and statutorily backed allocations.”
Speaking further, the CME noted that “some commentaries selectively relied on past data while ignoring the forward-looking analysis and ongoing public financial management reforms highlighted in the report.”
Continuing, he said, “The World Bank explicitly notes that reforms implemented in early 2026, including the recently signed Executive Order to safeguard remittance of petroleum revenues, are already addressing concerns around deductions, and are expected to improve transparency while increasing revenues available to all tiers of government by about 0.4% of GDP annually.
“Misinterpreting one aspect of the analysis without acknowledging the progressive reforms and measures already introduced to enhance distributable federation revenues gives a distorted picture.”
Stronger macro-economic fundamentals
The minister explained that rather than look at the negatives, analysts and experts alike should look at the broader message of the World Bank report, which is positive and forward-looking.
According to the NDU, economic growth has become more broad-based across sectors, inflation, while still elevated, is declining due to deliberate policy actions.
The report also stated that Nigeria’s external position had strengthened significantly, with improved reserves and a current account surplus. Just as debt indicators have improved, including a decline in the debt-to-GDP ratio, the first in over a decade.
“These developments reflect the outcomes of the current administration’s on-going macro-economic policies and public financial management reforms,” he said.
For the CME, the World Bank does not conclude that Nigeria’s fiscal system is collapsing or that reforms have failed, noting that, “Rather, it stated that reforms are working, and they must be sustained and deepened to translate macroeconomic gains into inclusive growth.”
Blanket indictment?
Some experts have argued that it would be unfair and inaccurate to present the World Bank as issuing a blanket indictment of the government’s reform agenda.
In the same report, the Bank acknowledged that Nigeria’s macro-economic reforms had improved some headline indicators.
According to World Bank lead economist for Nigeria, Alex Sienaert, the government revenue rose by 4.5 per cent of GDP in 2024, calling it a “remarkable achievement driven by subsidy removal, improved tax administration, and higher remittances.”
He also said exchange-rate reforms had helped to re-build official reserves, adding that “that’s significant because this is the cushion the economy has against external volatility.”
“This matters because it shows the World Bank’s message is not that all reforms have failed, but that gains in revenue and stabilisation are being undermined by weaknesses in fiscal transmission and governance.”
Indeed, Oyedele leaned heavily on that broader interpretation when he argued that critics were cherry-picking one part of the report while ignoring its reform recommendations and optimistic macro-economic conclusions.
The NDU supports that claim, stating that a February 13 Executive Order removed certain FAAC deductions and requires taxes, royalties and profit under production-sharing contracts to be remitted in cash, reforms expected to generate 0.4 per cent of GDP annually, while increasing transparency in oil revenue flows.
Oyedele said further, “The World Bank explicitly notes that reforms implemented in early 2026, including the recently signed Executive Order to safeguard remittance of petroleum revenues, are already addressing concerns around deductions, and are expected to improve transparency while increasing revenues available to all tiers of government by about 0.4% of GDP annually.”
Experts weigh in
The president of the Capital Markets Academics Association of Nigeria, Uche Uwaleke, called for aggressive reduction in the cost of revenue collection, which he described as “inconsistent with global best practices,” and broader systemic changes to plug persistent gaps.
The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, was even more pragmatic: “Improved transparency and accountability across all government tiers are essential if increased revenues are to translate into better living conditions for citizens.”
The Bretton Woods Institute recommends a comprehensive overhaul: routing all agencies funding through the annual budget process for legislative approval, slashing cost-of-collection charges, and eliminating fixed-percentage deductions. Without such changes, the report warns, fiscal space will remain constrained and recent economic gains could unravel.
Experts argue further that only rigorous oversight, independent verification, and citizen-centric budgeting can ensure that rising revenues finally translate into rising prosperity for all.
