Revenue from foreign exchange rate gains crashed by 73 per cent in the first half of 2025, falling to N589.45bn from N2.199tn recorded in the same period of 2024, signalling a major shift in Nigeria’s fiscal structure as arbitrage opportunities continue to dry up.
The data, obtained from the Federation Account Allocation Committee, shows a significant reduction in the contribution of exchange rate differentials to total allocations.
In the first half of 2024, FX gains accounted for 30.7 per cent of FAAC distributions. That share declined to just 6.06 per cent in the corresponding period of 2025, indicating that the fiscal windfall from currency mismatches is no longer a reliable source of revenue.
Despite the steep decline in this income stream, total FAAC disbursements rose to N9.723tn between January and June 2025, representing a 35.6 per cent increase compared to the N7.171tn shared during the same period in 2024.
This increase was largely driven by non-FX-related revenues, indicating the Federal Government’s growing reliance on more stable revenue sources. The sharp decline in FX-related revenue has been linked to the adjustment in the government’s exchange rate benchmark.
In 2024, while the official budget benchmark was set at N800 to the dollar, market rates averaged around N1,455, allowing the government to book massive gains when converting foreign inflows.
However, by the end of 2024, this gap had narrowed significantly, and in January 2025, the government adopted a benchmark of N1,500 to the dollar, aligning more closely with prevailing market rates. As a result, exchange rate gains of N402.71bn were shared in January 2025, based on revenues earned in December 2024.
From February to March, however, there were no recorded FX gains. This coincided with the Central Bank of Nigeria’s average official rates of N1,475 and N1,500 in January and February, respectively, virtually matching the government’s benchmark and eliminating the arbitrage margin.
The trend continued into mid-year. In June 2024, FAAC shared N507.46bn in exchange rate revenue out of a total N1.143tn—representing 44 per cent. By June 2025, the contribution from FX gains had declined to N76.61bn, accounting for just 4.6 per cent of the N1.659tn total distribution for the month.
Despite the decline, the Federal Government continued to take the largest share of the reduced pool. Of the N589.45bn shared in FX gains between January and June 2025, the Federal Government received N280.93bn.
State governments got N140.26bn, Local Government Councils received N113.14bn, while oil-producing states received N64.52bn under the 13 per cent derivation principle.
In the first half of 2024, the Federal Government had received N889.93bn from exchange rate gains, while states got N450.10bn, LGs received N362.08bn, and oil-producing states received N200.91bn. This translates to a year-on-year drop of 68.4 per cent for the Federal Government, 68.8 per cent for states, 68.7 per cent for Local Governments, and 67.9 per cent for derivation-based revenue.
The pattern shows the heavily centralised nature of Nigeria’s fiscal system, in which the Federal Government remains somewhat cushioned from revenue shocks, while subnational entities face more acute fiscal pressures.
The PUNCH earlier reported that the Central Bank of Nigeria injected a total of $4.1bn into the foreign exchange market in the first half of 2025, a move aimed at stabilising the naira and easing liquidity pressures in the currency market.
This figure, which is more than three times the $1.3bn recorded during the same period in 2024, was contained in the latest CSL Stockbrokers’ H2 2025 Outlook report. According to an analysis of the data from the report, there was a 215% increase. CSL Stockbrokers Limited is a member of FCMB Group and also a member of the Nigerian Stock Exchange.
This came as industry analysts expressed concerns over the sustainability of the currency defence strategy, citing weak oil earnings, subdued foreign portfolio investment inflows, and uncertainties around external financing.
However, members of the Organised Private Sector argued that no responsible central bank would allow market forces to solely determine the value of its currency without some form of intervention to ensure stability.
Also, The PUNCH observed that Nigeria’s gross external reserves fell by $3.67bn in the first half of 2025, based on data obtained from the Central Bank of Nigeria.
According to the CSL Stockbrokers’ report, the CBN’s aggressive intervention reflects a stronger commitment to defending the naira amid persistent volatility and weak capital inflows. The naira, which opened the year at N1,535 to the US dollar in the official market, appreciated slightly to N1,530/$ by the end of June, supported largely by these FX injections.
The report read, “The local currency, which opened the year at around N1,535/$ in the official market, posted a marginal appreciation to close the first half at around N1,530/$, reflecting a YTD gain of 0.4 per cent. This relative stability was largely underpinned by sizable interventions from the CBN, which we believe helped contain depreciation pressures, especially during periods of heightened volatility.
“Notably, the apex bank injected about $4.1bn into the FX market in H1 2025, well above the $1.3bn provided during the same period last year, demonstrating a stronger commitment to supporting market liquidity.”
CSL noted that the apex bank’s interventions were most pronounced in April, when the naira temporarily weakened to N1,630/$ following heightened investor risk aversion triggered by the announcement of new US trade tariffs.
“It is worth highlighting that in April, when foreign currency inflows were limited and the exchange rate temporarily weakened to as high as N1,630/US$, amid investor risk aversion triggered by the announcement of US trade tariffs, net FX inflows from the CBN surged to the highest level so far this year,” the report stated.
Despite the interventions, CSL expressed concerns over the sustainability of the currency defence strategy, citing weak oil earnings, subdued foreign portfolio investment inflows, and uncertainties around external financing.
The report added, “We believe that the central bank will remain committed to defending the Naira, which could allow the exchange rate trade between the N1,500-N1,600/US$ band in the second half of the year.
“However, without a material improvement in FX inflows, either through stronger oil revenues, renewed FDI and FPI momentum, or access to external financing, the sustainability of the defence strategy could come under increased scrutiny in the next six to twelve months.”(Punch)
