World Bank Opens Up on Subsidy Payment by Nigeria in 3 Years

• The foreign exchange subsidy policy of the federal government caused a significant loss of N13.2 trillion in revenue
• In 2021, 2022, and 2023, the government reportedly lost N2 trillion, N6.2 trillion, and N5 trillion, respectively
• Ultimately, this subsidy led to a sharp drop in the government's sources of income during this period

Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.

The World Bank has said that between 2021 and 2023, the federal government's foreign exchange subsidy strategy resulted in a substantial loss of N13.2 trillion in lost revenue.

The government reportedly lost N2 trillion in 2021, N6.2 trillion in 2022, and N5 trillion in 2023.

The amount of money lost resulted from its emphasis on controlling the naira's value in relation to the dollar on the official exchange market while permitting a fair market value price on the black market.

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In the end, this subsidy—which was intended to stabilize the currency and assist specific industries—caused the government's revenue streams to decline significantly during this time.

However, the World Bank emphasised in the most recent NDU report that the nation lost N13.2 trillion in revenue, which benefited some groups at the expense of the nation as a whole.

Out of the total, a total of N3.9 trillion in tax revenue was lost by the non-oil industry.

The organisation further emphasized that, in contrast to the Central Bank's July 2023 policy pronouncement, the government ended the foreign exchange subsidy in February 2024.

The report read:

“Quantifying the fiscal cost, through forgone revenue of multiple exchange rates: Prior to the full FX unification in February 2024, the presence of a parallel FX premium generated enormous fiscal costs, in the form of forgone revenues.

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“This situation emerged because FX revenue inflows—such as oil and customs revenues, as well as a portion of domestic VAT and CIT which are paid in FX—were transferred to the treasury at the official exchange rate.

“However, due to the significant difference between the official and parallel market rates, the amount of naira-denominated revenue received by the Federation from FX-linked revenues was significantly reduced.

“The unification of the FX rate has therefore eliminated the forgone revenues that previously benefited certain groups at the expense of the entire nation.”

World Bank sends warning on petrol price

Legit.ng reported that the World Bank has warned that a further spike in the price of Premium Motor Spirit (petrol) could endanger Nigeria's already precarious economic recovery after fuel subsidies were eliminated.

This was revealed on the October edition of its Africa's Pulse report.

In May 2023, President Bola Tinubu formally declared that gasoline subsidies would no longer be provided. Since then, prices have soared from N175 per liter to over N1,000 nationwide.

Source: Legit.ng