In the nine months leading up to September 30th, 2023, the three tiers of government experienced a significant boost in income, totaling N1.05 trillion, attributed to exchange rate gains in the Federation Account. This surge marks a staggering 10,400% increase when compared to the N10.35 billion recorded during the corresponding period in 2022, characterized by a marginal 4.8% depreciation of the naira.
Exchange rate gains, the variance between the official forex market rate and the budget assumption, played a pivotal role in this substantial income surge. The budget’s exchange rate assumption, employed for converting foreign currency income into the Federation Account, includes revenues from crude oil exports, foreign aid, and foreign loans.
While the approved Budget 2023 was predicated on an exchange rate of N435 per dollar, the naira witnessed a 71.3% depreciation in the official forex market. This depreciation, soaring from N449.05 per dollar on December 31st, 2022, to N769.26 per dollar on September 30th, 2023, widened the gap between the budget exchange rate and the prevailing exchange rate to N334.26 per dollar.
As a consequence, the income from exchange rate gains into the Federation Account skyrocketed to N1.05 trillion during the nine months, showcasing an exceptional 10,400% YoY increase from the N10.35 billion in the corresponding period of 2022.
In the first quarter of 2023 (Q1’23), exchange gains into the Federation Account surged to N144.84 billion, a stark contrast from zero in the preceding quarter, Q4’22. Although exchange rate gains experienced a 51% quarter-on-quarter decline to N70.64 billion, there was a remarkable 1,081% QoQ upswing to N834.37 billion in the third quarter, Q3’23, driven by the naira depreciation resulting from forex market reforms introduced by the CBN on June 14, 2023.
However, the simultaneous naira depreciation and the impact of fuel subsidy-led reductions in purchasing power led to a notable rise in the inflation rate, reaching 28.92%, the highest in 20 years.
