Nigeria’s income from exchange rates gains 73% dropped to the first half of 2025, falling to 589.45 billion Nairas, against 2,199 Billions of Nairas during the same period last year, highlighting a fundamental reset of the country’s budgetary operations which previously increased the reforms based on the market.
The figures, obtained from the Federation Allowment Committee (FAAC), show a steep reversal of a source of income which contributed only a year ago almost a third of all FAAC allowances. In the first half of 2025, this share had only decreased at just 6.06%, marking the end of an era when the exchange rates of exchange rates served as a stolen door revenue generator for the government.
The decline follows the federal government’s decision to adjust the official budgetary reference for the NAIRA to 1,500 N, in accordance with the market rates in force, effectively fill the gap which has once allowed surpluses of massive nairas when dollars have been converted to more favorable market rates compared to a lower budget assumption.
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In 2024, when the official reference index was still set at N800 / $ while the Naira exchanged around 1,455 n, this disparity created great benefits on paper. But while the government has aligned its hypotheses on market conditions from January 2025, these budget surpluses were evaporated.
January spike, then silence
The latest increase in FX revenues occurred in January 2025, when 402.71 billion Nairas were distributed, largely reflecting the profits from December 2024, before the new reference took effect. Since then, with the Naira on average 1,475 N. in January and reaching 1,500 N.500 / $ in February, the convergence of the exchange rate meant that zero gains were recorded in February and March.
A comparison of the two -year June figures reveals how dramatic change has been. In June 2024, exchange rate gains were 507.46 billion Nairas, or 44% of N1,143 Billions shared this month. A year later, this contribution fell to only 76.61 billion Nairas, representing only 4.6% of the FAAC allowance of 1.659 Billion de Nairas.
Despite the collapse of this income line, the total FAAC allowances increased to 9.723 Billions of Nairas in H1 2025, up 35.6% compared to N7,171 Billions during the same period of 2024. The figures suggest that, although the revenue income has dried up, the overall income was widened no longer strong sources.
The federal government still claims the lion’s share
Even when the gains have decreased, the federal government has maintained its dominant grip on FX derived allowances. Of the 589.45 billion Nairas distributed exchange rates between January and June 2025, the federal government took 280.93 billion Nairas. States governments received 140.26 billion nairas, local governments of 113.14 billion and oil producing states obtained 64.52 billion Nairas under the 13%derivation principle.
This distribution model remains largely unchanged from 2024, but with all categories with steep drops. The FX interruption of the federal government dropped by 68.4%, compared to 889.93 billion nairas in H1 2024, while the states and the LG experienced decreases of 68.8%and 68.7%, respectively. Driving revenues in oil producing states fell by 67.9%.
The figures once again highlight the highly centralized nature of the Nigeria budgetary system, where the federal government benefits from relative insulation of external shocks, while nourishing entities are faced with acute exposure to the fluctuations of shared income.
Policies reform resets the game
What Nigeria is a witness is the natural consequence of a long change in policy recommended by market economists: a transparent and market exchange rate system that minimizes distortions. The drawback is the disappearance of “paper benefits” created by differences, which had had the country’s underlying income challenges for years.
Analysts note that with the budgetary reference index, now practically reflecting the market rate, future FX arbitration gains are unlikely unless the new volatility is introduced. Although this deprives government chests of occasional manners, it also requires a more sustainable budgetary structure, anchored in real sources of income rather than discrepancies.
But this also means that Nigeria must now rely more on petroleum income, tax reform and non -oil diversification to consolidate finances, especially since global conditions remain uncertain. For states and LGs, already pressed by inflation and the increase in salary requests, the pressure is intensifying.
In the end, the end of the arbitration era signals a lean but more disciplined budgetary architecture, but not without short -term pain, in particular at the infranational level.
