A recent report by the think-tank organisation, Agora Policy, has revealed that exchange gains have become a significant source of revenue for the Federation Account Allocation Committee (FAAC). The report, titled “How Exchange Gain Became a Major Source of Federation Revenue”, pointed out the significant increase in exchange gains after the unification of the foreign exchange market.
According to the report, exchange gains have surpassed the contribution of value-added tax (VAT) to FAAC in June 2023 and February 2024. The total exchange gain recorded from May 2019 to April 2024 was N4.74 trillion, with N4.23 trillion of this amount coming from May 2023 to April 2024.
The report attributes the significant increase in exchange gains to the floating of the naira by mid-June 2023, which resulted in large spreads between the budget rate and the actual official rate. This has led to a substantial increase in the difference between the projected and actual exchange rates, resulting in a windfall for the FAAC.
The beneficiaries of exchange gains include the states, federal government, and local government areas, which have received a significant share of the revenue. The report notes that the average official exchange rate for February 2024 was N1,509.83 per dollar, compared to the budget rate of N800 per dollar.
Experts attribute the increase in exchange gains to the difference in baseline data used between 2019 and 2024. According to Dr. Muda Yusuf, CEO of Centre for the Promotion of Private Enterprise, the significant increase is due to the huge difference in the baseline of data used between 2019 and 2024.
The report suggests that while the current trend is likely to continue, it is expected to decrease over time as the baseline changes. However, for now, exchange gains have become a major source of revenue for FAAC, providing a significant boost to its revenue stream.
