Cordros Capital has noted that in the short term, higher disbursements from the Federation Accounts Allocation Committee (FAAC) may not offer fiscal relief to different tiers of government, including states.

According to the firm, the anticipated support comes at a time when sub-national governments continue to grapple with rising obligations and limited internally generated revenue.

The analysts pointed to the possibility of moderate revenue improvements in the near term, largely driven by a combination of improved domestic crude oil production and potentially stronger collections from company income tax (CIT), which could benefit from an increasingly stable macroeconomic backdrop.

However, despite the prospects, Cordros Capital highlighted several caveats that may temper expectations. One of the most immediate concerns is the recent stability of the naira, which, while broadly positive for economic planning and pricing stability, also implies a lower naira exchange value from oil receipts.

When added with the prevailing weakness in global oil prices, the analysts argued, the expected foreign exchange gains from oil exports could be muted in the months ahead.

This dynamic may cap any meaningful rise in FAAC allocations even if production volumes continue to recover, the analysts said.

Beyond the short-term revenue projections, Cordros Capital drew attention to deeper structural issues embedded within Nigeria’s fiscal system. The country’s continued dependence on oil, a commodity market known for its extreme price volatility, remains a critical vulnerability.

Also, frequent deductions from gross oil earnings to fund various off-budget transfers and special intervention programs further diminish the net distributable revenue, it said.

The structural imbalances, according to the analysts, leave monthly FAAC disbursements highly susceptible to external shocks and undermine the predictability and stability of intergovernmental fiscal flows.

In the broader context of capital markets, these fiscal uncertainties and vulnerabilities carry implications for investor confidence and the government’s funding strategy.

If monthly allocations remain unstable, it could translate into inconsistent sub-national spending and greater reliance on debt markets to bridge recurrent shortfalls.

This scenario would increase the supply of sub-sovereign debt instruments, potentially pushing yields higher and tightening liquidity in the broader financial system.