Daud Olatunji
The World Bank has revealed that Nigeria suffered a significant revenue loss of N13.2 trillion due to the implementation of its foreign exchange (FX) subsidy policy between 2021 and 2023.
The report, part of the World Bank’s latest Nigeria Development Update (NDU), highlighted the massive financial toll the FX subsidy had on the nation’s economy, warning of the urgent need to maintain a unified exchange rate to avoid future fiscal damages.
According to the report, the subsidy, which saw Nigeria lose about 5% of its Gross Domestic Product (GDP) during the period, not only drained vital public funds but also disproportionately benefited a few privileged groups at the expense of the country’s broader population.
The breakdown of the losses showed that Nigeria forfeited N2 trillion in 2021, N6.2 trillion in 2022, and N5 trillion in 2023, as a direct consequence of operating a dual exchange rate regime.
During this period, the official exchange rate differed significantly from the parallel market, leading to a huge loss of naira-denominated revenues that could have bolstered government coffers.
The World Bank said that key revenue streams, including oil and gas revenues, import and excise duties, value-added tax (VAT), and company income tax (CIT), were all affected by the FX subsidy.
State-owned enterprises such as the Nigerian National Petroleum Corporation (NNPC), the Nigerian Ports Authority (NPA), and the Federal Airports Authority of Nigeria (FAAN) were also impacted.
The report further disclosed that VAT on imported goods, which constitutes 44.3% of net VAT revenue, and 40% of total CIT revenue were paid in foreign currency during the period.
This practice reduced the amount of naira revenue the government could collect, resulting in a widening fiscal deficit.
Wale Edun, Nigeria’s Minister of Finance and Coordinating Minister of the Economy, confirmed the termination of the FX subsidy on October 17, stating that it was unsustainable and had led to financial strain.
“The FX subsidy era is over,” Edun said, underscoring the devastating impact it had on the economy.
The World Bank applauded Nigeria’s decision to unify its exchange rate in February 2024, noting that this reform is crucial to restoring fiscal balance and eliminating market distortions.
The unification has helped close the gap between the official and parallel market rates, thereby preventing further losses and promoting price discovery.
The institution stressed that maintaining a unified FX rate is vital for the country’s financial health and recommended that the government focus on promoting transparency in FX transactions and supporting market liquidity.
It also urged the Nigerian authorities to channel oil-related inflows into the official market, while easing any remaining FX restrictions to encourage investment and trade.
“The estimated forgone revenues from the FX premium exceeded the cost of the petrol subsidy, demonstrating the significance of the FX unification,” the report said.
In 2022, when Nigeria’s petrol subsidy cost N4.5 trillion, the country lost N6.2 trillion in FX revenues due to the premium between the official and parallel market rates, the World Bank revealed. Of this, N4.5 trillion came from gross oil revenues, while N1.7 trillion was from non-oil tax revenues.
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