What Is FAAC and Why Its Monthly Allocation Matters to Nigerians

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By Editorial Team

The Federation Account Allocation Committee, popularly known as FAAC, plays a central role in Nigeria’s public finance system and directly affects how government functions across the country.

FAAC is the body responsible for sharing revenue collected by the Federal Government among the three tiers of government: the federal, state and local governments. This sharing is done monthly and determines how much money each tier has to pay salaries, execute projects and provide public services.

Although FAAC meetings often receive little public attention outside official announcements, their outcomes affect the daily lives of millions of Nigerians, from civil servants waiting for salaries to communities expecting basic infrastructure.

How FAAC Works

Revenue shared at FAAC comes mainly from crude oil sales, petroleum profit tax, company income tax, customs duties and other federally collected revenues.

These funds are paid into the Federation Account, as provided for in Nigeria’s Constitution. Representatives of the Federal Government, the 36 states, the Federal Capital Territory and local governments then meet monthly to share the revenue using an agreed formula.

Before sharing, certain statutory deductions are made. The most notable is the 13 per cent derivation fund, which is paid to oil-producing states to compensate for environmental and economic impact of oil exploration activities.

After these deductions, the remaining balance is shared among the three tiers of government.

Understanding the FAAC Sharing Formula

The FAAC sharing formula determines how the money in the Federation Account is divided.

Under the current arrangement:

• Federal Government: about 52.68 per cent

• State Governments: about 26.72 per cent

• Local Governments: about 20.60 per cent

This formula applies to most revenues shared at FAAC, including oil and non-oil income.

The Federal Government receives the largest share because it is responsible for national obligations such as defence, foreign affairs, debt servicing, federal roads, national security and regulatory agencies.

Supporters of this structure argue that these responsibilities require significant funding. However, critics say the large federal share leaves states and local governments financially constrained, even though they are closer to the people and handle many basic services.

What the Formula Means for States

With just over a quarter of FAAC revenue shared among 36 states, many state governments rely heavily on monthly allocations to survive.

States with weak internally generated revenue struggle the most when FAAC allocations decline. During such periods, salary payments are delayed, capital projects are suspended and borrowing increases.

This heavy dependence on FAAC has raised concerns among economists, who argue that the formula discourages states from developing strong internal revenue systems.

Local Governments and Grassroots Development

Local governments receive the smallest share of FAAC revenue, yet they are expected to provide services such as primary healthcare, basic education, rural roads, markets and sanitation.

In reality, many local governments complain that their allocations are insufficient to meet these responsibilities. The situation is further complicated by the operation of joint state-local government accounts, which often delay or reduce councils’ access to funds.

As a result, development at the grassroots level remains slow in many parts of the country.

Factors That Affect FAAC Allocations

Several factors determine how much revenue is available for sharing each month.

Crude oil prices play a major role. Nigeria earns a large portion of its revenue from oil exports, so when global oil prices rise, FAAC allocations tend to improve. When prices fall, allocations decline.

Oil production levels also matter. Disruptions caused by pipeline vandalism, oil theft and technical issues reduce revenue inflow into the Federation Account.

Exchange rate movements influence FAAC as well. Since oil revenue is earned in dollars, changes in the naira exchange rate affect the value of revenue when converted to local currency.

Non-oil revenue performance, including tax collection and customs duties, also contributes to FAAC outcomes.

Why FAAC Matters to Ordinary Nigerians

Although FAAC meetings take place among government officials, their impact is felt directly by ordinary citizens.

When allocations are strong, governments are better positioned to pay salaries, maintain infrastructure, fund hospitals and schools, and stimulate local economies.

When allocations are weak, the effects are immediate. Salary delays reduce spending power, contractors are unpaid, projects stall and unemployment pressures increase.

In simple terms, FAAC affects economic stability at state and local levels.

Transparency and Public Accountability Concerns

Over the years, transparency around FAAC allocations has remained a major public concern. Citizens and civil society groups often demand greater accountability in how allocated funds are spent.

While FAAC figures are usually published after meetings, details of how states and local governments utilise the funds are not always clear to the public.

Experts argue that better disclosure of FAAC receipts and expenditure would improve trust and ensure that public funds are used for the intended purposes.

Debates Over Reviewing the Sharing Formula

The FAAC sharing formula has remained largely unchanged for years, but calls for its review are growing.

Some states argue that they should receive a larger share to reflect their development responsibilities. Others believe local governments should be better funded to strengthen grassroots governance.

There are also proposals for a performance-based formula that rewards states that generate more revenue internally, rather than encouraging dependence on federal allocations.

The Way Forward

Analysts say reviewing the FAAC sharing formula alone will not solve Nigeria’s fiscal challenges.

They argue that Nigeria must diversify its revenue base, reduce dependence on oil and strengthen tax administration. States are also encouraged to improve internally generated revenue to complement FAAC allocations.

Until these reforms are fully implemented, FAAC will remain a key pillar of Nigeria’s public finance system and a major determinant of how government services reach the people.