FG plans liquidity controls as oil, tax reforms lift inflows

…weighs phased FAAC payouts to curb inflation risk

The federal government is considering staggered revenue distributions and the creation of fiscal buffers as part of strategies to prevent a surge in public-sector liquidity from fueling inflation, as sweeping oil and tax reforms begin to lift inflows into the Federation Account.

Speaking at the latest meeting of the Federation Account Allocation Committee (FAAC) in Abuja, Doris Uzoka-Anite, minister of state for finance said structural changes to petroleum revenue management and newly implemented tax measures are expected to materially strengthen monthly allocations to federal, state and local governments. But she cautioned that higher revenues, if fully distributed at once, could destabilise the macroeconomic environment.

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“We convene today at a pivotal moment in the fiscal management of our Federation. The revenue outlook is changing,” she said.

The reforms include a presidential executive order issued on February 13, 2026 that mandates the full remittance of oil and gas revenues into the Federation Account, suspends certain management fees and allocations previously deducted at source, and directs that gas flare penalties be paid directly into the common pool shared by the three tiers of government.

At the same time, tax reforms, which took fully took effect from January are broadening the tax base and improving compliance, according to the minister.

Together, the measures are expected to increase gross monthly inflows and boost FAAC distributable income in a sustained manner. Oil-producing states could see higher 13% derivation transfers, while overall cash-flow predictability across tiers of government is likely to improve. Retrospective audits of funds and past deductions may also yield one-off recoveries.

Uzoka-Anite signaled that the government is wary of the macroeconomic consequences of a sudden jump in allocations.

“Experience shows that when revenues rise sharply and are distributed fully and immediately, large liquidity injections can increase inflationary pressures, complicate monetary management, and reduce the real purchasing power of allocations,” she said.

Nigeria is emerging from a period of elevated inflation and exchange-rate volatility, with policymakers seeking to stabilise prices while sustaining growth. A sharp increase in fiscal injections, particularly if channeled towards recurrent spending, could heighten aggregate demand, put pressure on the currency and complicate the central bank’s liquidity management operations.

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To mitigate those risks, the minister proposed a structured framework for managing higher inflows. One option under consideration is the phased disbursement of any one-off recoveries arising from retrospective audits, rather than distributing them in a single tranche. Part of incremental inflows could also be warehoused in a stabilisation buffer to smooth their impact on liquidity.

 

“We should consider staggered FAAC distribution rather than a single bulk injection,” she said, adding that fiscal and monetary authorities “must move in sync.”

 

The government is also weighing a strengthened stabilisation mechanism to channel a portion of higher inflows into a buffer that can be drawn upon during weaker revenue months, reducing pro-cyclical spending. Closer coordination with the central bank would aim to align fiscal injections with open market operations and other liquidity management tools.

 

Recent revenue reforms mark a shift towards a gross remittance model in petroleum income management, reinforcing the principle that all revenues accruing to the federation belong first in the Federation Account. For the all tiers of government, however, the next test will be managing the anticipated windfall without reigniting price pressures — balancing the political appeal of higher allocations with the economic imperative of stability.

 

Uzoka-Anite urged federal ministries and state governments to prioritise capital expenditure and productive investment over recurrent outlays, arguing that infrastructure, agriculture and energy spending would expand supply capacity and help dampen inflationary pressures over time. She also pledged enhanced transparency, including monthly revenue dashboards and reconciliation reporting to track incremental inflows from tax and oil reforms.

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The broader objective, she said, is to ensure that higher revenues translate into macroeconomic stability rather than fiscal complacency.

“In simple terms, when too much liquidity enters the system at once, prices can rise in a way that erodes the value of the very allocations we are distributing,” Uzoka-Anite said.