Fiscal recklessness, politically-motivated expenditures and weak oversight may undermine the prospect of leveraging fuel subsidy earnings, rising oil income and revenue optimisation policies to rebuild fiscal buffers.

The rising revenue profiles offer, in principle, a rare opportunity to the government to aggressively rebuild the country’s depleted buffers, including the Excess Crude Account (ECA), Sovereign Wealth Fund (SWF), as well as a sinking fund to retire mature loans, which came under intense pressure in recent years.

With most states still depending on the Federation Account for survival and President Bola Tinubu’s tendency to mollify state governors in the face of political pressure, the administration may miss the opportunity to reinvent the aggressive national savings culture that the government developed during President Olusegun Obasanjo.

Nigeria is trapped in a paradox of higher earnings, increasing debts and weaker buffers. Last year, a total of N34.89 trillion was available for sharing among the three tiers of government, about 22 per cent of the composite sum of N28.6 trillion available in 2024.

The 100 per cent remittance of the production sharing contract (PSC) profits into the Federation Account, which took off in February, saw the value remitted increase from N16.066 billion to N121.343 billion. The spike is considered by many as another boost to revenue in the coming months. Rather than considering the additional earnings as another spending power for the state executives, many said the net proceeds could be channelled to rebuilding the depleted fiscal buffers.

In the twilight of the Goodluck Jonathan administration, the Federal Government was blackmailed to stave off devaluation by claiming that a broke government could not afford to save for a nebulous rainy day.

In 2008, a year after Obasanjo handed over the reins, the proceeds of the flagship savings account – the Excess Crude Account (ECA) – hit $20 billion. But $18 billion was drawn from the account for sharing among the FG and state governments, leaving $2.07 billion in the account as of May 2015 when late President Muhammadu Buhari assumed office.

The depletion would continue for eight years under Buhari, leaving a balance of $473,754.57 as of May 29, 2023, when the current administration assumed office. From 2015 to 2023, transactions on the ECA were one-way withdrawals. Understandably, oil prices traded below the budget estimate, leaving the government at a fiscal deficit that widened to N13.52 trillion in 2023.

As of 2024, the ECA, according to the Budget Implementation Report (BIR), remained at $473,754.57. The current administration may have renewed transactions on the account as the Accountant-General of the Federation, Shamsedeen Ogunjimi, said the amount stood at $535,823.39 as of August 2025.  In mid-January, that is about 20 months after the fuel subsidy (a major drain of the Federation Account was removed), the AGF told the National Economic Council (NEC) that the figure remained at $535,823.39.

The ECA management became a mainstream political issue towards the 2015 election when the opposition government led a legal campaign to compel the FG to disburse the savings, crippling the scheme created in 2004 as a financial buffer to save oil revenues above budget benchmarks.

Today, crude is trading close to 60 per cent above the projected $64.85 per barrel 2026 appropriation. Iran, a major oil-producing country, is currently weaponising crude and has warned the global community to brace for $200 crude.

Since 2024, when the governors fought Jonathan to submission over deduction from the Federation Account into the ECA to fund the country’s SWF, the country may be at the cusp of a major oil windfall and the prospect of realising a substantial differential between the estimated budget benchmark and actual price. This raises questions about what the government intends to do with the almost dormant ECA.

The country is only left with an external reserves buffer, which has rallied to $50 billion, a significant increase from recent years’ low but still far behind its above $62 billion all-time high recorded in 2008.

For a country whose sovereign debts have grown aggressively in the past 10 years, from less than N13 trillion to over N150 trillion, the paradox of a growing revenue inflow and falling savings may also offer a sobering reflection.

Sinking funds to retire matured loans have also been treated with levity, with the buffer perhaps empty.  Whereas the cumulative stock of funds in the account is unknown, periodic remittances have been scanty. For instance, the BIRs of 2021, 2022 and 2023 claimed that transfer into the buffer was zero for the three years.

In 2024, N265.86 billion was transferred in the fourth quarter of the year.  The amount, which was less than a 10th of the appropriated N2.75 trillion for the year, is an insignificant percentage of the Federal Government’s total debt stock at the period. Then, the Federal Government accounted for 95 per cent or about N137 trillion of the total documented public debt of N144.67 trillion.

Last year, the government tampered with its plan of saving for debt repayment. It earmarked N377.3 billion as estimated to be transferred into the sinking fund. Data by the Ministry of Budget and Economic Planning put the actual savings in the first half of the year at N85.09 billion – a 45 per cent budget performance.

With sovereign savings falling to a trickle in the face of ballooning debts and low revenue, the Federal Government may have been trapped in debt refinancing. Every month, the Debt Management Office (DMO, backed with the full faith of the sovereignty) issues bonds, which occasionally exceed 100 bid-to-cover ratios.

In January, for instance, it raised N1.54 trillion to open the year. The office had retooled its national debt management office, prioritising a longer-term approach, which effectively transfers the principal of the current debt programme to subsequent administration.

Last year alone, the institution raised N5.26 trillion from Federal Government of Nigeria (FGN) bond issuances, while it raised N5.84 trillion in 2024, most of which were long-term. The government, in the past few years, has taken an inward-looking approach to fiscal deficit funding, despite concerns raised by the World Bank and the International Monetary Fund (IMF).

At the weekend, the IMF said governments across sub-Saharan Africa are increasingly relying on domestic borrowing to finance public spending as access to foreign loans becomes more difficult. Its report noted that most public debts in the region are now raised locally rather than from external lenders, marking a major shift in how African countries fund their budgets.

While the move offers protection from foreign exchange shocks and the global market, it warns that domestic borrowing also carries significant risks, including the need to refinance more frequently at higher interest rates as the facilities come with shorter tenors than concessional credit.

“A loss in a government’s creditworthiness can wipe out bank assets and trigger a banking crisis. A banking crisis in turn can lead to bank bailouts, reduced private credit and growth, capital outflows and a deeper fiscal crisis,” the report warned.

It noted with concern the growing link between governments and banks, often described as the sovereign-bank nexus, saying it is expanding rapidly across sub-Saharan Africa and poses risks to financial stability in many countries.