In the first half of 2024, Nigeria’s federal, state, and local governments made around N2.74 trillion from exchange rate gains.
This information comes from reports by the Federation Account Allocation Committee (FAAC), shared by the National Bureau of Statistics (NBS).
Gains from exchange rates in the first six months of 2024 were about 1,494% higher than the N171.91 billion gained in the same period last year.
How Exchange Rates Helped
This big increase shows that combining the country’s different exchange rates and lowering the value of the naira helped the government earn more money.
Exchange gains happen when there’s a difference between the expected exchange rate in the budget and the real rate used when converting money at FAAC.
The lower value of the naira has been important for growing government income in Naira terms, making up 22% of the total N12.45 trillion revenue during this period.
Even though the government made more money, they also had to pay more costs. Nigeria is going through tough times with high inflation and lower purchasing power. Because of this, labor unions agreed with the government to increase the minimum wage from N30,000 to N70,000 per month.
Who Gets the Most Money?
The extra money from “Exchange Gain” was shared by the Federal Government, State Governments, Local Government Councils (LGCs), and the 13% Derivation Fund, based on a sharing plan approved by the Revenue Mobilization Allocation and Fiscal Commission (RMAFC).
Before sharing, there are deductions like the 13% derivation and other costs. Then, the Federal Government gets 52.68%, the State Government gets 26.72%, and the Local Government gets 20.60% of what’s left.
From the Federal Government’s share (52.68%), some money goes to ecological problems (1%), the Federal Capital Territory (1%), natural resources development (1.68%), and statutory stabilization (0.5%). The rest, 48.5%, goes to the Federal Government.
- The Federal Government got the most from exchange gains, about N1.12 trillion over six months. This was 41% of the total exchange gain and 9% of the total revenue for this time.
- State Governments received N567.08 billion from the gains, which was around 41% of the total revenue from exchange gains. Local Government Councils got N437.20 billion, about 16%.
- The 13% Derivation Fund, for oil-producing states, got N283.77 billion, or 10% of the exchange gain revenue.
- Transfers were also made to the non-oil Excess Crude Account, with N330 billion given over three months (February, March, and June). This was more than what Local Government Councils got, about 12% of the total exchange gain revenue for this period.
Highest Exchange Gains in March
- In January 2024, N287.74 billion in exchange gains were shared, making up 17.2% of the total revenue that month.
- This almost doubled in February to N479.03 billion, 23.2% of that month’s total revenue.
- March had the highest single-month gain of N657.44 billion, or 28.3% of that month’s revenue, due to more naira depreciation and higher foreign exchange inflows.
- In April and May, exchange gains dropped to N285.52 billion and N438.88 billion, making up 15.3% and 20% of the total revenues for those months respectively.
- But in June, exchange gains went back up to N587.46 billion, or 25.3% of the total revenue for the month, showing continued naira depreciation and its impact on government revenues.
Important Things to Know
About two weeks after President Bola Tinubu said he would unify Nigeria’s various exchange rates, the Central Bank of Nigeria (CBN) decided to float the naira in the Investors and Exporters (I&E) forex window, now called the Nigerian Autonomous Foreign Exchange Market (NAFEM).
Since then, the naira’s value has been going up and down, now around N1,560/$1 to N1,600/$1.
Nigerians are dealing with ongoing exchange rate changes, as the naira fell by 40% from the end of December 2023 to June 2024.
The exchange rate ended 2023 at N907.11 and fluctuated, closing the first half of the year at N1,503/$1.
This shows that the first half of 2024 had big ups and downs in Nigeria’s exchange rate, tied to the country’s economic challenges and policy changes.
The N2.74 trillion from exchange rate differences helped the government financially, allowing them to fund important expenses despite broader economic difficulties.
This 22% boost in total revenue illustrates how much of a role currency fluctuations have played in increasing government income this year.
But it also makes one think about how long this can last, especially since it depends on external factors and not solid economic foundations.
The Institute of Chartered Accountants of Nigeria (ICAN) said last year that unifying the country’s exchange rate would help grow the securities market and attract foreign investments.
They also pointed out that a unified exchange rate would increase government income in naira terms and result in a higher tax/revenue to GDP ratio.
However, while the weak currency might be good for the government and some banks, it’s been tough on many manufacturing companies in Nigeria, which have reported big foreign exchange losses.