Nigeria’s revenue from exchange rate gains dropped sharply by 73% in the first half of 2025, plunging to N589.45 billion from N2.199 trillion recorded during the same period in 2024.
This marks a fundamental shift in the country’s fiscal landscape as arbitrage opportunities driven by exchange rate differentials all but disappeared, signalling the government’s deeper alignment with market-based exchange rate assumptions.
The data, obtained from the Federation Account Allocation Committee (FAAC), show that a revenue stream once responsible for nearly a third of public distributions in early 2024 has dwindled to a marginal contributor.
In H1 2024, exchange rate gains accounted for 30.7% of total FAAC allocations; by H1 2025, that contribution had declined to just 6.06%.
Despite the steep fall in this category, overall FAAC allocations rose by 35.6% year-on-year to N9.723 trillion in H1 2025, compared to N7.171 trillion in the corresponding period of 2024. The implication is clear: while the volume of money available for sharing has grown, the government is increasingly relying on non-FX revenue sources to fund its obligations.
Benchmark adjustment wipes out windfall gains
The sharp decline in exchange rate revenue is likely tied to the federal government’s decision to adjust its budget benchmark rate to better reflect prevailing market conditions.
In 2024, the naira traded around N1,455/$ while the official budget benchmark remained at N800/$—a widespread that allowed government dollar inflows to be converted at higher market rates, creating large naira surpluses when reported against the lower benchmark.
However, this dynamic began to change at the end of 2024, and by January 2025, the new budget benchmark of N1,500/$ effectively closed the gap. While N402.71 billion in exchange rate gains was distributed in January 2025—reflecting December 2024 revenues—no such gains were recorded in February and March 2025.
This coincided with official exchange rates reported by the Central Bank of Nigeria (CBN), which averaged N1,475/$ in January and N1,500/$ in February, nearly identical to the budget assumption.
The impact of this convergence was stark. In June 2024, exchange rate gains accounted for N507.46 billion out of N1.143 trillion shared—a 44% share. One year later, in June 2025, exchange rate revenue had fallen to N76.61 billion, making up just 4.6% of the N1.659 trillion distributed that month. The data confirms that arbitrage-fuelled surpluses are no longer a reliable fiscal buffer under the current framework.
Federal government still takes the largest slice
Despite the revenue collapse, the Federal Government retained its traditional dominant share of exchange rate allocations. Out of the N589.45 billion shared from FX gains between January and June 2025, the Federal Government received N280.93 billion.
State Governments were allocated N140.26 billion, Local Government Councils received N113.14 billion, and N64.52 billion went to oil-producing states under the 13% derivation principle.
In comparison, during H1 2024, the Federal Government took N889.93 billion from FX gains, States received N450.10 billion, LGs N362.08 billion, and oil-producing states N200.91 billion. This represents year-on-year declines of 68.4% for the Federal Government, 68.8% for States, 68.7% for LGs, and 67.9% for derivation revenue.
These numbers reflect the persistent centralisation of Nigeria’s fiscal structure, where the Federal Government remains somewhat insulated from shocks, while subnational entities face disproportionate exposure to revenue shortfalls. As the country moves toward a more transparent and market-aligned exchange regime, the long-term implication is a leaner but more stable system.
