Nigeria's Higher FAAC Earnings Present Leverage to Rebuild Fiscal Buffers
Nigeria stands at a pivotal juncture where increased Federation Account Allocation Committee (FAAC) earnings could enable the rebuilding of critical fiscal buffers, yet this opportunity faces threats from fiscal recklessness, politically-motivated expenditures, and weak oversight mechanisms.
The Paradox of Rising Revenue and Depleting Savings
In principle, the nation's escalating revenue profiles—driven by fuel subsidy savings, rising oil income, and revenue optimization policies—offer a rare chance to aggressively restore depleted buffers. These include the Excess Crude Account (ECA), Sovereign Wealth Fund (SWF), and sinking funds for retiring mature loans, all of which have come under intense pressure in recent years.
However, Nigeria remains trapped in a paradox of higher earnings, increasing debts, and weaker buffers. With most states still reliant on the Federation Account for survival and President Bola Tinubu's tendency to appease state governors amid political pressures, the administration risks missing this crucial opportunity to revive the aggressive national savings culture established during President Olusegun Obasanjo's tenure.
Historical Context and Current Challenges
Last year, a total of N34.89 trillion was available for sharing among the three tiers of government, marking a significant 22 percent increase from the N28.6 trillion available in 2024. A key boost came from the 100 percent remittance of production sharing contract (PSC) profits into the Federation Account, which saw values surge from N16.066 billion to N121.343 billion starting in February.
Rather than viewing these additional earnings as mere spending power for state executives, many analysts argue that the net proceeds should be channeled toward rebuilding fiscal buffers. This perspective gains urgency given historical precedents: under the Goodluck Jonathan administration, the Federal Government faced pressure to avoid saving, with claims that a financially strained government could not afford to set aside funds for a nebulous rainy day.
In 2008, a year after Obasanjo left office, the ECA peaked at $20 billion. However, by May 2015, when late President Muhammadu Buhari assumed office, withdrawals had reduced it to $2.07 billion. The depletion continued over eight years under Buhari, leaving a mere $473,754.57 by May 29, 2023, when the current administration took over.
Recent Developments and Fiscal Pressures
From 2015 to 2023, ECA transactions were predominantly one-way withdrawals, exacerbated by oil prices trading below budget estimates and a fiscal deficit that widened to N13.52 trillion in 2023. As of 2024, the ECA balance remained stagnant at $473,754.57, according to the Budget Implementation Report (BIR).
The current administration has shown some renewal, with Accountant-General of the Federation Shamsedeen Ogunjimi reporting the ECA at $535,823.39 as of August 2025. By mid-January, about 20 months after fuel subsidy removal—a major drain on the Federation Account—the figure remained unchanged at $535,823.39, as communicated to the National Economic Council (NEC).
Political and Economic Implications
The management of the ECA became a mainstream political issue ahead of the 2015 elections, when opposition forces led a legal campaign to compel disbursement of savings, effectively crippling the scheme established in 2004 as a financial buffer for oil revenues exceeding budget benchmarks.
Today, with crude oil trading approximately 60 percent above the projected $64.85 per barrel for 2026 appropriations, and major producer Iran warning of potential $200 crude prices, Nigeria may be on the brink of a significant oil windfall. This raises critical questions about the government's plans for the nearly dormant ECA, especially given the differential between estimated budget benchmarks and actual prices.
Debt and Savings Dynamics
Nigeria's external reserves buffer has rallied to $50 billion, a notable increase from recent lows but still below the all-time high of over $62 billion recorded in 2008. Meanwhile, sovereign debts have surged aggressively over the past decade, from less than N13 trillion to over N150 trillion, highlighting the paradox of growing revenue inflows alongside falling savings.
Sinking funds for retiring matured loans have also been treated with levity, often remaining empty. For instance, BIRs from 2021 to 2023 reported zero transfers into these buffers. In 2024, only N265.86 billion was transferred in the fourth quarter—less than a tenth of the appropriated N2.75 trillion for the year and an insignificant percentage of the Federal Government's total debt stock at the time.
Government Actions and Fiscal Strategies
Last year, the government adjusted its debt repayment savings plan, earmarking N377.3 billion for transfer into the sinking fund. Data from the Ministry of Budget and Economic Planning indicated actual savings in the first half of the year at N85.09 billion, reflecting a 45 percent budget performance.
With sovereign savings dwindling amid ballooning debts and low revenue, the Federal Government appears trapped in debt refinancing cycles. The Debt Management Office (DMO) regularly issues bonds, sometimes exceeding 100 bid-to-cover ratios. In January alone, it raised N1.54 trillion, and last year, it secured N5.26 trillion from Federal Government of Nigeria (FGN) bond issuances, with N5.84 trillion raised in 2024, predominantly long-term.
Global Context and Risks
In recent years, the government has adopted an inward-looking approach to fiscal deficit funding, despite concerns from the World Bank and International Monetary Fund (IMF). The IMF recently noted that sub-Saharan African governments are increasingly relying on domestic borrowing as access to foreign loans becomes more difficult.
This shift, while offering protection from foreign exchange shocks, carries significant risks, including the need for more frequent refinancing at higher interest rates due to shorter tenors compared to concessional credit. The IMF warns that a loss in government creditworthiness could trigger banking crises, reduced private credit, capital outflows, and deeper fiscal instability, highlighting the expanding sovereign-bank nexus across the region.
As Nigeria navigates this complex fiscal landscape, the imperative to leverage higher FAAC earnings for rebuilding buffers remains critical, balancing immediate political pressures with long-term economic stability.
