FG and Tiers of Government Gain N1.05 Trillion from Naira Depreciation

In the nine months leading to September 30th, 2023, the three tiers of the Nigerian government benefitted from a significant income of N1.05 trillion due to exchange rate gains into the Federation Account. This surge is attributed to the 71% depreciation of the naira during this period, marking a substantial increase of 10,400% compared to the corresponding period in 2022.

Exchange rate gain income reflects the variance between the official forex market rate and the assumed exchange rate in the budget. The Federation Account receives more value in naira for foreign currency income when the prevailing exchange rate surpasses the budgeted rate.

The approved Budget 2023 was based on an exchange rate of N435 per dollar. However, by September 30th, 2023, the naira had depreciated by 71.3%, reaching N769.26 per dollar, as opposed to N449.05 per dollar on December 31st, 2022. This widening difference resulted in exchange rate gains of N1.05 trillion during the period, showcasing a significant Year-on-Year increase from N10.35 billion in 2022.

In the first quarter of 2023 (Q1’23), exchange gains into the Federation Account rose to N144.84 billion from zero in the preceding quarter (Q4’22). Despite a 51% drop in exchange rate gains in the second quarter (Q2’23) to N70.64 billion, there was an exponential increase in the third quarter (Q3’23) by 1,081%, reaching N834.37 billion. This surge was influenced by the naira depreciation triggered by forex market reforms introduced by the Central Bank of Nigeria (CBN) on June 14, 2023.

However, the depreciation, coupled with the impact of fuel subsidy, led to a reduction in the purchasing power of Nigerians, contributing to a steady rise in the prices of goods and services and pushing the inflation rate to 28.92%, the highest in 20 years.