FG Seeks Liquidity Buffers As Oil Reforms Boost FAAC Revenue To States

… Says Unmanaged Cash Surges Could Fuel Inflation, Macroeconomic Instability

…Unveils New Revenue Reporting Regime

The Federal Government has proposed the creation of liquidity buffers and phased revenue disbursement mechanisms as sweeping oil and gas reforms begin to lift inflows into the Federation Account, warning that unmanaged cash surges could fuel inflation and macroeconomic instability.

The proposals were outlined by the Minister of State for Finance and Chairman of the Federation Account Allocation Committee (FAAC), Doris Uzoka-Anite while addressing members of the committee on the implications of a new Presidential Executive Order aimed at safeguarding federation oil and gas revenues.

According to the minister, recent tax reforms and the Executive Order issued on February 13, 2026, mark a turning point in the country’s fiscal management, with the combined effect expected to significantly increase distributable revenues to the Federal, State and Local Governments.

“The revenue outlook is changing,” the minister said, noting that tax reforms have broadened the tax base, improved compliance and strengthened administrative efficiency, while the Executive Order has restored discipline and constitutional clarity to petroleum revenue management.

The Executive Order signed by President Bola Tinubu targets long-standing leakages in the oil and gas sector, including off-budget deductions, retained management fees, diversion of gas flare penalties and fragmented remittance structures.

Key provisions include the suspension of the 30 per cent allocation to the Frontier Exploration Fund, the suspension of the 30 per cent management fee on profit oil and gas payable to NNPC Limited, the directive that gas flare penalties be paid directly into the Federation Account, and the mandatory full remittance of petroleum revenues without unconstitutional deductions.

The minister described the reforms as a fundamental shift from a “retention-based” oil revenue model to a “gross remittance, Federation-first” framework.

As a result, FAAC is expected to record higher monthly gross inflows, increased allocations to all tiers of government, higher 13 per cent derivation payments to oil-producing states, and improved cash flow predictability.

He also disclosed that retrospective audits of the Frontier Exploration Fund, the Midstream and Downstream Gas Infrastructure Fund, and NNPC management fee deductions could lead to recoveries that may provide a one-off fiscal boost.

Despite welcoming the improved revenue outlook, the minister cautioned that sudden liquidity injections into the economy could heighten inflationary pressures, complicate monetary management and erode the real value of allocations.

“When revenues rise sharply and are distributed fully and immediately, excessive liquidity can enter the system at once, pushing up prices and undermining macroeconomic stability,” he said.

To address this risk, the Federal Government proposed several safeguards, including phased disbursement of any one-off recoveries rather than bulk payouts, and the temporary warehousing of part of the inflows in stabilization buffers to smooth liquidity impact.

FAAC was also urged to strengthen existing excess crude and stabilization buffer mechanisms by channeling part of incremental revenues into fiscal buffers that can be deployed during weaker revenue months, thereby reducing pro-cyclical spending.

The minister further stressed the importance of closer coordination between fiscal and monetary authorities, saying alignment with the Central Bank of Nigeria would help manage liquidity injections and support open market operations where necessary.

“Fiscal and monetary authorities must move in sync to avoid destabilising money supply expansion,” he said.

States and federal ministries, departments and agencies were also encouraged to prioritise capital expenditure over recurrent spending, invest in infrastructure and productive sectors, and avoid unsustainable wage or consumption-driven spending spikes.

In a move to strengthen accountability, the Federal Government announced plans to introduce a new revenue reporting regime, including monthly transparency dashboards, production-to-remittance reconciliation reports, and clear disclosure of incremental inflows driven by tax reforms and the Executive Order.

According to the minister, enhanced transparency would build trust across all tiers of government and reinforce fiscal discipline.

The minister said the reforms present a strategic opportunity to deepen fiscal federalism, enhance distributable revenues, restore constitutional order and strengthen cooperation among the federal, state and local governments.

However, he warned against treating higher inflows as permanent windfalls, urging governments to focus on debt reduction, arrears clearance, buffer building and growth-enhancing investments.

“The true success of these reforms will not be measured by higher monthly allocations alone,” he said. “It will be measured by stability, discipline, growth and responsible stewardship of our collective resources.”