**Abuja, October 22, 2024** — Nigeria’s government forfeited N13.2 trillion in revenue due to its foreign exchange subsidy policy between 2021 and 2023, according to a recent report by the World Bank. The losses stemmed from the government’s efforts to regulate the naira’s value in the official exchange market while a higher exchange rate was allowed in the parallel market.
Breaking down the figures, the World Bank revealed that Nigeria lost N2 trillion in 2021, N6.2 trillion in 2022, and N5 trillion in 2023. The policy, intended to stabilize the naira and aid certain sectors of the economy, resulted in a significant reduction in the government’s revenue collection during the period.
Last Thursday, Nigeria’s Minister of Finance, Wale Edun, announced the end of both fuel and foreign exchange subsidies at the launch of the World Bank’s Nigeria Development Update (NDU). He highlighted the economic burden that these subsidies had placed on the nation and confirmed that the government would no longer continue with these policies.
“Fuel and FX subsidies are extinguished,” Edun stated, underscoring the negative impact these policies had on Nigeria’s fiscal health.
For decades, Nigeria allocated large portions of its revenue to sustain petrol and foreign exchange subsidies, though many of the benefits were often not felt broadly across the country. The World Bank, in its NDU report, emphasized that the N13.2 trillion lost in revenue primarily favored specific groups rather than benefiting the nation as a whole. Of this amount, N3.9 trillion was lost in non-oil tax revenues.
The World Bank also clarified that Nigeria officially terminated the foreign exchange subsidy in February 2024, despite an earlier policy announcement by the Central Bank in July 2023.
The report detailed the financial toll of maintaining multiple exchange rates, which created a significant gap between the official and parallel market rates. This gap resulted in substantial revenue losses, as foreign exchange-linked revenue streams like oil sales, customs duties, and portions of domestic taxes were transferred to the treasury at the lower official exchange rate.
“The unification of the FX rate has therefore eliminated the forgone revenues that previously benefited certain groups at the expense of the entire nation,” the World Bank report noted.
The institution also highlighted that five key revenue streams were impacted by the exchange rate premium, including oil and gas revenue, import and excise duties, VAT, Company Income Tax (CIT), and revenue from government-owned enterprises like the Nigerian National Petroleum Corporation (NNPC) and the Nigerian Ports Authority (NPA).
Further, the report noted that 44.3% of VAT on imported goods was paid in foreign currency between 2021 and 2023, while 40% of CIT revenue was also collected in foreign exchange during this period.
The World Bank stressed that the revenue losses from the foreign exchange subsidy were even more substantial than those incurred from Nigeria’s petrol subsidy. For example, while the cost of the petrol subsidy reached N4.5 trillion in 2022 (2.2% of GDP), the revenue losses due to the foreign exchange rate gap amounted to N6.2 trillion (3% of GDP). Of this, N4.5 trillion was lost in oil-related revenue, with an additional N1.7 trillion lost from non-oil tax revenues.
The recent move to unify the exchange rate aims to close the revenue gap, helping to prevent further losses and improve Nigeria’s fiscal health.
