FX Gain Now Major Source Of FAAC Revenue – Report
A think-tank organisation, Agora Policy, has stated that foreign exchange gains have become a major source of revenue for the Federation Account Allocation Committee.
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.
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 organisation stated exchange gain had been a feature of the FAAC over time.
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.
Agora Policy said that exchange gain had greatly increased, but the other sources had been barely noticeable.
It surpassed VAT’s contribution to FAAC in June 2023 and February 2024.
According to the report, from May 2023 to April 2024, N4.23tn was shared as exchange gain by FAAC, representing 20.14 per cent of N20.99tn, which was the gross FAAC revenue for the 12 months.
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 February 2024 had the highest exchange gain haul so far in terms of absolute number and percentage contribution at FAAC.
According to Agora Policy, exchange gain contributed N657.44bn or 28.26 per cent of gross FAAC revenue of N2.33tn.
The think tank stated that it was 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),” it noted.
According to the body, 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.
“In FAAC disbursement for January 2024, a sum of N200bn was saved in non-oil excess account from exchange gain,” added.
The report noted that the average official exchange rate for February 2024 was N1,509.83 per dollar as against the 2024 budget rate of N800/$.
“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.
It also declared that the lowest exchange gain in the last year was N147.07bn for May 2023, while the highest was N657.44bn for February 2024.
Commenting, the Chief Executive Officer of Centre for the Promotion of Private Enterprise, 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.
“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.
According to the CPPE boss, after some time, that relativity will disappear.
“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.
