Emmanuel OchayiForeign exchange (FX) gains have emerged as a significant revenue source for Nigeria’s Federation Account Allocation Committee (FAAC), according to a recent report by Agora Policy, a think-tank organisation.
The report, titled “How Exchange Gain Became a Major Source of Federation Revenue,” highlights the dramatic increase in FX gains following the unification of the foreign exchange market.
“Exchange gain represents the difference between the exchange rate projected in the budget and the actual rate at which applicable revenue streams are converted at FAAC,” explained an Agora Policy spokesperson. “This has been a feature of the FAAC over time, but its prominence has surged recently.”
The FAAC, which includes value-added tax (VAT), statutory revenue, exchange gain, excess bank charges, and electronic money transfer levy, saw exchange gains surpass VAT contributions in June 2023 and February 2024. From May 2023 to April 2024, N4.23 trillion was shared as an exchange gain by FAAC, accounting for 20.14% of the N20.99 trillion gross FAAC revenue for that period.
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“The total exchange gain from May 2019 to April 2024 was N4.74 trillion. Out of this, only N510.26 billion was recorded from May 2019 to April 2023,” the report noted. “However, from May 2023 to April 2024, the exchange gain soared to N4.23 trillion.”
This remarkable increase is attributed to the floating of the naira, in mid-June 2023, which led to significant spreads between the budget rate and the actual official rate. February 2024 recorded the highest exchange gain to date, contributing N657.44 billion or 28.26% of the gross FAAC revenue for that month.
Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, commented on the situation. “The significant increase was expected due to the huge difference in the baseline of data used between 2019 and 2024,” he said. “When you look at the exchange rate used to convert our dollar earnings before, it was 450 per dollar but it has moved to N1,490. So, it is a no-brainer that the source of revenue increased.”
He further explained, “Oil is our major source of forex, and oil revenue is coming directly to the government because it is in charge, almost 80% or more. So because they are in the custody of much forex revenue, the naira equivalent of what they are getting from it has also gone up significantly.”
The report also highlighted that in January 2024, N200 billion was saved in the non-oil excess account from exchange gain. The average official exchange rate for February 2024 was N1,509.83 per dollar, compared to the 2024 budget rate of N800/$1.
Agora Policy emphasised that the consistent rise in gross revenue is due to the regularity of exchange gains. “The monthly average for exchange gain from May 2023 to April 2024 was N352.45 billion, compared to the monthly average of N10.63 billion for May 2019 to May 2023,” the report stated.
As FX gains continue to play a crucial role in FAAC’s revenue, stakeholders are closely monitoring how future exchange rate policies will impact this trend.
Emmanuel Ochayi is a journalist. He is a graduate of the University of Lagos, School of first choice and the nations pride. Emmanuel is keen on exploring writing angles in different areas, including Business, climate change, politics, Education, and others.
