The activities of governments after the disbursement of money by the Federation Account Allocation Committee (FAAC) contributed to the depreciation of the naira, according to data and interviews with people familiar with the matter.
BusinessDay learnt that portions of the funds from FAAC were often changed to dollars by some governments at the parallel market, putting more pressure on the naira.
An analysis shows that from July 2023 to January 2024, the naira depreciated in six months immediately in the black market after the FAAC shared money to the federal, state and local governments.
“With the removal of fuel subsidy, more volumes of naira are being shared by the federal, state and local governments and some of these monies are changed to dollars at the parallel market,” Jude Idimogu, chieftain of the All Progressives Congress (APC), said in an interview with BusinessDay.
“A week to when they want to share money, note the price of the dollar at that time and after collection, you will see that it will increase because they would have more naira and they would use it to buy dollars. We Nigerians are not helping the system,” he added.
The liberalisation of the foreign exchange market by the Central Bank of Nigeria since last June has led to a large depreciation of the naira, which has also increased revenue for Africa’s biggest economy.
Experts say there is a strong correlation between the depreciation of the naira and demand for dollars after FAAC disbursements.
“There is a correlation between the release of FAAC allocation and the depreciation in the exchange rate, especially in the parallel market. That is why we need to be very cautious about this rate unification theory,” Muda Yusuf, chief executive officer of the Centre for Promotion of Private Enterprises (CPPE), said. (BusinessDay)
