Gains made from foreign exchange, FX, have allegedly become a major source of revenue for the Federation Account Allocation Committee, FAAC, having accrued over N4.23 trillion between May 2023 and April 2024.
This is according to a recent report from Agora Policy which revealed that during the period, the surge in the FX’s contributory capacity as a constituent of the monthly FAAC allocation represents around 20.14% of N20.99tn which was the total FAAC allocation to the three tiers of government within the last 12 months – a significant increase from 1.32% between 2019 and April 2023.
In the report titled “How Exchange Gain Became a Major Source of Federation Revenue”, Agora Policy said the exchange gain saw an increase after the unification of the foreign exchange market adding that exchange gain had been a feature of the FAAC over time.
It however drew attention to the significant increase exchange gain has witnessed in recent time but which had been barely noticed even though it surpassed VAT’s contribution to FAAC in June 2023 and February 2024.
The report read, “The total exchange gain recorded from May 2019 to April 2024 amounted to N4.74tn. Out of this, only N510.26bn was recorded as exchange gain for the four years from May 2019 to April 2023. However, the exchange gain for May 2023 to April 2024 was N4.23tn.
“This means that one year accounted for 89.23 per cent of the exchange gain in five years; while the prior four years contributed only 10.77 per cent of the exchange gain in the five years. Put another way, 80 per cent of the period under consideration produced only about 11 per cent of the exchange gain while 20 per cent of the period resulted in almost 90 per cent of the exchange gain. The reason for this is not difficult to fathom: exchange gain swelled into prominence after the floating of the naira by mid-June 2023, with the resultant effect of large spreads between the budget rate and the actual official rate.”
It added that so far, February 2024 had the highest exchange gain haul in terms of absolute number and percentage contribution at FAAC, citing a N657.44bn or 28.26 per cent contribution of exchange gain to the gross FAAC revenue of N2.33tn which is higher than the total exchange gain of N510.26bn for the 48 months or four years, from May 2019 to April 2023.
“It is noteworthy that in February 2024, exchange gain recorded its best performance to date: it brought in N657.44bn or 28.26 per cent of the gross FAAC revenue for the month.
“However, the picture changed following the foreign exchange reforms that commenced on June 14, 2023, with the resultant effect of large spreads between the budget rate and the actual official rate.
“The increasing eminence of exchange gain rubbed off positively on its beneficiaries because they have had more money to share (or would have had much less to share without it),” the report noted.
Agora Policy also stated that the beneficiaries of exchange gain are the states that earn 13 per cent derivation, the Federal Government, all 36 states and the 774 local government areas that took 52.68 per cent, 26.72 per cent, and 20.60 per cent share of the exchange gain less 13 per cent derivation.
Also, it noted that the average official exchange rate for February 2024 was N1,509.83 per dollar as against the 2024 budget rate of N800/$, declaring that the lowest exchange gain in the last year was N147.07bn for May 2023, while the highest was N657.44bn for February 2024.
“In FAAC disbursement for January 2024, a sum of N200bn was saved in non-oil excess account from exchange gain.
“A major reason for the consistent rise in gross revenue is the consistency of exchange gain.
“The monthly average for exchange gain for May 2023 to April 2024 was N352.45bn compared to the monthly average of N10.63bn for May 2019 to May 2023,” Agora Policy averred.
Commenting, the Chief Executive Officer of Centre for the Promotion of Private Enterprise, CPPE, Dr Muda Yusuf, stated that the significant increase was expected due to the huge difference in the baseline of data used between 2019 and 2024.
Dr Yusuf also explained that because the government was in charge of about 80% of the total revenue it gets directly from oil which is considered the major source of foreign exchange, it was impossible for individuals to get the same equivalence of what the government gets for the naira. He added that the relativity was also expected to disappear after some time.
He said, “The figure is not surprising as it is a relative thing. 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.
“Secondly, oil is our major source of forex and oil revenue is coming directly to the government because it is in charge, almost 80 per cent 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 because the forex for individuals is not as much as what the government gets. So because the government is a major supplier, they have the biggest advantage,” he explained.
“By the time you compare this time to next year, the percentage difference would have reduced. The baseline would have changed. It is looking big now because you are coming from a baseline of N450 to over N1,400,” he expounded.
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.
The FAAC is largely comprised of value-added tax and statutory revenue (subdivided into mineral revenue and non-mineral revenue), exchange gain, excess bank charges, and electronic money transfer levy.
Recall that upon taking office in May last year, President Bola Tinubu removed petrol subsidy, which had previously consumed significant government revenues. In June, the CBN also announced the unification of the foreign exchange market while the exchange rate gain shared by the federal, 36 states and LGAs stood at N2.52 trillion with a greater percentage coming after the unification of the forex market in June 2023.
