Every month, officials from the federal government, 36 states, and 774 local governments gather for the Federation Account Allocation Committee meeting to determine how Nigeria divides its collected revenue. This quiet ritual governs the nation’s economic and political life through a complex formula that has remained unchanged for three decades.
Now, for the first time in over three decades, that foundational system is about to change. On August 15, 2026, Dr. Mohammed Bello Shehu, Chairman of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), announced the completion of a new revenue allocation formula.
Why the formula that Nigeria divides by is frozen in time
The proposal, which awaits presidential assent before heading to the National Assembly, marks the end of a structure created in 1992 and aims to reshape Nigeria’s fiscal federalism for a new era.
To understand the significance of this change, one must look back to 1992. The last time the formula was comprehensively reviewed, Nigeria was under military rule and its governance structure was vastly different. The principles set then have governed the distribution of trillions of naira for more than thirty years, even as the country itself transformed around them.
The 1999 Constitution, which ushered in the Fourth Republic, began a slow but steady shift of power and responsibility. Over the years, constitutional amendments have devolved significant duties from the federal government to the states. But the funding model failed to keep pace. This created a fundamental mismatch between what states were expected to do and the resources they were given to do it.
According to RMAFC Chairman Shehu, this imbalance is the central problem the new formula seeks to correct. It’s no longer just about sharing money; it’s about funding responsibility. This long-standing tension has been a constant source of political friction and a major driver of debate about the nature of Nigerian federalism, a conversation often shaped by figures like the late statesman Yusuf Maitama Sule.
A new map of money and power
The core of the proposed reform lies in recognizing the expanded duties of state governments. Recent constitutional changes now permit states to operate railways, build and manage prisons (now called correctional services), and play a much larger role in the electricity sector. These were once the exclusive domains of the federal government.
This transfer of responsibility, however, came with immense financial and administrative burdens that the old formula never anticipated. The new proposal from the RMAFC is designed to directly address this by recalibrating the vertical allocation—the share of revenue that goes to the federal, state, and local government tiers respectively.
The goal, as articulated by Shehu, is to ensure that funds follow function. If a state is now responsible for building a rail line or running a correctional facility, its share of the national revenue must reflect that new expenditure. This shift aims to create a more equitable and sustainable system where subnational governments have the means to deliver on their expanded mandates.
Slicing the national cake, vertically and horizontally
The commission’s work involved more than just adjusting the split between the three tiers of government. Shehu highlighted a two-pronged approach. The vertical formula addresses the federal-state-local government split. But the horizontal formula, which dictates how revenue is shared *among* the 36 states, has also been under intense review.
This horizontal allocation depends on a range of factors, or ‘indices,’ including constitutionally mandated ones like population and landmass. To update this, the RMAFC embarked on a massive data verification exercise. For the past year, it has been collecting data from states on socio-economic indicators like school enrolment numbers and hospital capacity through a new digital platform.
Crucially, the commission didn’t just accept the submitted figures. Teams were sent out for physical verification across the country, comparing the data to the reality on the ground. This meticulous process, now complete in all but Kwara State and the FCT, aims to ensure that the distribution of funds among states is based on verified needs, not just claims.
Building a new consensus beyond oil
The journey to this new formula officially began on August 18, 2025, but the groundwork was laid through years of nationwide consultations. The RMAFC engaged with all three tiers of government, technical experts, and civil society, undertaking a thorough assessment of fiscal trends and comparative federal systems to build a harmonized report.
While the new formula promises a more equitable distribution of federal revenue, the commission is also pushing states to look beyond their monthly FAAC allocations. Shehu pointed to the Federal Capital Territory, which generates over 70 percent of its own budget, and Lagos State as models for fiscal independence. The message is clear: states must innovate to survive.
Digitalisation of revenue collection is proving to be a powerful tool. States like Nasarawa, Kaduna, and Enugu have reportedly boosted their internally generated revenue (IGR) by over 300 percent by moving away from manual, cash-based systems prone to leakage. The commission is actively encouraging others to learn from these successes.
This drive for diversification is essential, especially in regions grappling with their economic identity, as seen in the ambitious gamble to break Delta State’s oil addiction.
Beyond technology, Shehu advocates for states to develop their unique comparative advantages, whether in agriculture, mining, or tourism. He speaks of regional collaboration, like the long-term integration blueprint being developed by South-West states, as a pathway to larger economic projects that no single state could manage alone.
The final hurdles and the future of the federation
With the review completed, the focus now shifts to the political process. The RMAFC has worked with the Ministry of Justice to draft the enabling legislation that will accompany the formula. This complete package is ready for submission to the President, who will then transmit it to the National Assembly for debate and passage.
Shehu remains optimistic that the new formula could become law before the end of 2026. If it passes, it will represent one of the most significant structural reforms to Nigeria’s public finances in a generation. It also comes alongside a parallel review of remuneration for political, public, and judicial office holders, signaling a broad attempt to realign the country’s entire fiscal architecture.
Ultimately, the debate over revenue allocation is about more than just numbers. It is about the structure of the Nigerian federation itself. The commission’s advisory role extends to ensuring local governments, now with greater financial autonomy, become true centers of grassroots development.
Empowering local economies, such as those that support the renowned Akwete weavers and their textile traditions, is seen as crucial for national stability.
The new formula is not a magic bullet. But by attempting to align resources with responsibilities for the first time in a generation, it opens a new chapter in the perpetual Nigerian conversation about how to build a more perfect, and more equitable, union. The question that remains is whether the political will exists to see it through.
