How RMAFC’s 2025 revenue review can fix Nigeria’s fiscal imbalance — Experts

Recommend ring-fenced priority spending

ECONOMIC and finance experts have welcomed the ongoing review of Nigeria’s revenue allocation formula by the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), describing it as a potential game-changer for the country’s fiscal federalism.

They argued that the exercise, if properly executed, could correct long-standing imbalance, give state and local governments more resources, and improve service delivery for millions of Nigerians.

For decades, Nigeria’s revenue allocation framework has remained largely unchanged. States and local governments have depended heavily on federal transfers, while struggling to raise enough revenue on their own. At the same time, they face increasing responsibilities in health, education, infrastructure, agriculture, and security.

Experts believe that this mismatch between responsibilities and available funding has weakened governance and limited development. The 2025 review, according to them, offers a rare opportunity to realign resources with responsibilities, ensuring that “money follows function.”

Several stakeholders are pushing for states to receive a larger share of national revenue. Their argument is simple: states now shoulder more responsibilities than ever before, ranging from running schools and hospitals to providing security and even managing electricity and rail projects.

Experts also recommend that any additional allocation should be ring-fenced, meaning tied to specific projects such as roads, schools, healthcare, and rural development, to prevent misuse.

“By rebalancing vertical shares in line with expenditure mandates, refining horizontal allocations with updated data, and introducing ring-fenced priority spending, Nigeria can enhance fiscal efficiency and improve service delivery outcomes,” said CSL Research, the research arm of a Lagos-based investment advisory firm.

The firm added that stabilising VAT governance, clarifying derivation rules, and strengthening savings buffers would also help Nigeria reduce fiscal risks in the long run.

Nigeria’s rapid population growth, removal of fuel subsidies, exchange-rate instability, and worsening insecurity have all expanded the spending needs of states and local governments. Yet, the revenue sharing formula still leaves them with little to work with.

“States, which shoulder the bulk of responsibilities for education, healthcare, and agriculture, would be better resourced to deliver essential services and attract investment. Local governments, given their proximity to citizens, would be positioned to strengthen basic healthcare, water and sanitation, and rural infrastructure,” CSL Research said.

The firm further recommended that horizontal allocations, the criteria for dividing funds among states, should be updated using equality, population, and social development indicators to ensure fairness and address regional disparities.

Professor Uche Uwaleke, former commissioner for finance and a capital market expert from Nasarawa State University, also supports giving more revenue to states and local governments. However, he stressed the importance of clarity and accountability in the allocation system.

According to him, contrary to a popular belief, the Federal Government does not get 52.68 per cent of federation revenue. Instead, it directly receives 48.5 per cent into its Consolidated Revenue Fund, while the balance of about 4.1 percent goes into special funds, including one per cent for the Federal Capital Territory, 1.68 per cent for natural resource development, 0.5 per cent for a stabilisation fund, and one per cent for ecology.

“These special funds are meant to be held in trust for the benefit of states and local governments,” he explained.

Professor Uwaleke compared Nigeria’s arrangement with that of India, which has a similar federal structure. In India, about 41 per cent of revenue is allocated to sub-national governments, far higher than Nigeria’s current 26.7 per cent.

“States deserve more, particularly now that they are saddled with more responsibilities. But any increase should not just be lumped into the general pool. It should be tied to specific projects through the special funds component, so that states do not spend the money at their discretion,” Uwaleke advised.

Ordinary Nigerians say the outcome of the review should translate into real improvements in their daily lives.

“We don’t care about percentages and formulas if we still can’t get good hospitals or roads,” said Mrs Josephine Idoko, a school teacher in Lagos. “If states are given more money, they must be monitored to make sure it is spent on things that touch ordinary people.”

Similarly, a civil society activist, Mr Jide Odu, noted that past increases in state revenues did not lead to better governance.

“The problem is not just how much money states get, but how transparently they use it. The new formula must come with strict rules and accountability measures,” he said.

In Imo, a small business owner, Chinese Joseph, argued that local governments should get more funds directly.

“Local governments are closest to us. They know the bad roads in our areas, the lack of water, and the need for small markets. If they get more money, they should fix these things faster,” he said.

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Experts and citizens agree that the RMAFC must conduct wide consultations, engage stakeholders, and use robust data in finalising the review.

They argue that if the new formula is transparent and fair, it will not only promote equity across all tiers of government but also unlock improved public services for Nigerians.

In the words of CSL Research: “The RMAFC’S 2025 review presents a timely chance to correct long-standing imbalances. If implemented transparently, the reform could better align resources with responsibilities, promote equity, and strengthen Nigeria’s federal system.”