Revenue allocation review: Can RMAFC deliver a fairer formula for Nigeria’s federalism?

The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has announced the commencement of fresh review of Nigeria’s revenue-sharing formula, but stakeholders are demanding more funds for States as the Commission targets new framework before 2025 ends, writes JOSEPH INOKOTONG.

In what many analysts describe as one of the most significant fiscal reforms in recent decades, the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has initiated a fresh review of Nigeria’s revenue allocation formula. The exercise, which the Commission has promised to conclude before the end of 2025, is expected to reshape how revenues from the Federation Account are shared among the Federal, State, and Local Governments.

At a press conference in Abuja, RMAFC Chairman, Dr. Mohammed Bello Shehu, framed the review as a constitutional responsibility and a necessity dictated by changing socio-economic and political realities. He reminded Nigerians that Paragraph 32 (b), Part I of the Third Schedule of the 1999 Constitution mandates the Commission to “review, from time to time, the revenue allocation formulae and principles in operation to ensure conformity with changing realities.”

“In line with this responsibility, the Commission has resolved to initiate the process of reviewing the formula to reflect emerging socio-economic realities,” Dr. Bello declared. “The aim is to produce a fair, just, and equitable revenue-sharing arrangement that reflects the current responsibilities, needs, and capacities of the three tiers of government.”

The announcement has already stirred wide debate, with stakeholders—from state governors to academics, civil society organisations, and policy experts—demanding a more balanced formula that empowers subnational governments to meet their growing obligations.

A Long Overdue Review

The current revenue allocation formula has remained largely unchanged since 1992, despite significant shifts in Nigeria’s demographics, economy, and governance structure. Presently, the federal government takes 52.68 percent of revenues from the Federation Account, states receive 26.72 percent, while local governments share 20.60 percent. An additional 13 percent is set aside as derivation for oil-producing states.

Although successive administrations have issued executive orders adjusting aspects of the sharing framework, no comprehensive overhaul has been carried out in more than three decades.

“This is one of the longest periods Nigeria has gone without a review,” said Professor Hassan Usman, a political economist at the University of Abuja. “When you consider how much has changed since 1992—the creation of new states, population growth, the economic diversification debate, and constitutional amendments—the urgency of this review becomes obvious.”

Indeed, Nigeria’s population has ballooned from about 88 million in 1992 to over 230 million today, creating massive fiscal pressures on education, health, infrastructure, and security systems, particularly at the subnational level.

Shifting responsibilities, shrinking resources

One of the major justifications for the review is the recent devolution of powers by the 9th National Assembly. Constitutional amendments moved certain responsibilities—such as electricity generation, transmission, and distribution; railways; and correctional services—from the Exclusive to the Concurrent Legislative List. This shift means that states can now play more active roles in sectors once monopolised by the federal government.

While these changes were hailed as milestones for federalism, they come with financial implications. States are now expected to shoulder additional responsibilities without corresponding fiscal autonomy.

“This is why the allocation formula must change,” argued Dr. Bello. “Subnational governments cannot meet expanded obligations if the fiscal structure remains lopsided in favour of the centre.”

The Association of Capital Market Academics of Nigeria (ACMAN) reinforced this view. Its president, Professor Uche Uwaleke, called for a greater share of revenue for states but cautioned that such funds should be ring-fenced for development projects. “Allocations must be tied to infrastructure and human capital investments to ensure accountability and impact,” he said.

Federalism, fiscal justice, and the equity question

At the heart of the debate is the question of fiscal federalism—how resources should be equitably shared in a multi-tier government system. Nigeria’s revenue allocation system has historically been a contentious issue, often sparking political tensions and agitations.

During the First Republic, regional governments retained as much as 50 percent of revenues generated from their territories under the derivation principle, remitting the remainder to the centre. However, successive military regimes gradually centralised revenue control, culminating in the current formula that gives the federal government more than half of distributable revenues.

Critics argue that this imbalance stifles subnational development, fosters overdependence on federal allocations, and undermines accountability.

“States have been reduced to mere administrative units rather than federating entities,” said Lagos-based governance analyst, Ayo Olumide. “They come cap in hand every month to Abuja instead of building sustainable internal revenue bases. A revised formula that gives them more resources could be a game-changer, but only if matched with fiscal discipline.”

The oil dependency dilemma

The revenue allocation debate cannot be divorced from Nigeria’s heavy dependence on oil. Petroleum revenues account for a large proportion of distributable funds, though volatility in global oil prices has repeatedly exposed the vulnerability of the current fiscal structure.

Oil-producing states, under the 13 percent derivation principle, already enjoy additional allocations. Yet, non-oil states have often argued that the formula should support greater equity and national solidarity. The current review is expected to reopen old debates about how to balance derivation, equity, and efficiency.

Some experts have even suggested a gradual shift back to a stronger derivation principle to incentivise states to exploit their natural resources, including solid minerals and agriculture. “If we want real federalism, then states should retain a greater portion of revenues they generate while contributing to the centre,” argued Professor Usman. “This will encourage innovation and fiscal independence.”

The Oronsaye Report connection

Beyond revenue allocation, Dr. Bello also used the occasion to call for the implementation of the Oronsaye Report on public sector reforms. Among other recommendations, the report advocates the rationalisation of overlapping government agencies and the return of the Salaries and Wages Commission to RMAFC. “The implementation of the Oronsaye Report would reduce recurrent expenditure and free up funds to pay civil servants a living wage,” he said.

Analysts see this as part of a broader strategy to address Nigeria’s fiscal challenges, where a bloated bureaucracy consumes a disproportionate share of revenues at the expense of development spending.

A consultative, data-driven process

RMAFC has promised that the review process will be inclusive and transparent. Consultations are expected to involve the Presidency, National Assembly, state governors, the Association of Local Governments of Nigeria (ALGON), judiciary, ministries and agencies, civil society groups, traditional rulers, organised private sector, and development partners. The Commission has also pledged to rely on empirical data, cutting-edge research, and international best practices. This is crucial, experts say, because revenue allocation is as much a technical exercise as it is a political one.

“The credibility of the process will depend on the quality of data, the transparency of consultations, and the ability to build consensus among competing interests,” noted Dr. Ifeoma Nwachukwu, a fiscal policy researcher at the Nigerian Economic Summit Group (NESG).

Implications for governance and development

If successful, the review could reshape Nigeria’s fiscal landscape in profound ways. States may gain more resources to invest in infrastructure, education, health, and security, while local governments could become more empowered to deliver grassroots development.

But success will also hinge on governance at the subnational level. Already, concerns abound about the financial mismanagement, weak accountability, and corruption in many states and local councils.

“Giving more money to states without strong accountability mechanisms could worsen wastage,” warned Olumide. “We need institutional reforms at the state level—stronger legislatures, active civil society, and robust audit systems—to ensure that additional revenues are well utilised.

Looking ahead

As RMAFC embarks on this ambitious review, Nigerians are watching closely. For some, it is an opportunity to correct historical imbalances in the federation. For others, it is a test of political will and institutional capacity.

What seems certain is that the outcome will shape the country’s fiscal federalism for years to come. Whether it results in a more equitable and sustainable formula or merely another round of political horse-trading remains to be seen.

For now, expectations are high. “This review must not fail,” Professor Uwaleke insisted. “It is critical to Nigeria’s stability, development, and the survival of our federal system of government.

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