Nigeria Loses 13tn Naira to Forex Subsidy — World Bank
The Federal Government of Nigeria has incurred a substantial loss of N13.2 trillion in foregone revenue due to the foreign exchange (forex) subsidy policy between 2021 and 2023, according to a recent report by the World Bank. The government lost N2 trillion in 2021, N6.2 trillion in 2022, and N5 trillion in 2023, primarily due to its efforts to stabilise the naira by regulating its value in the official exchange market, while allowing a higher market rate in the parallel market.
The forex subsidy, which was intended to support various sectors and stabilise the local currency, ultimately led to a significant reduction in government revenue over the three-year period. These revelations were made at the launch of the World Bank’s Nigeria Development Update (NDU) last Thursday, where the Minister of Finance, Wale Edun, confirmed the end of both fuel and forex subsidies.
“Fuel and FX subsidies are extinguished,” Edun stated, emphasising that these policies had placed a heavy financial burden on the nation’s economy.
The World Bank report highlighted that the N13.2 trillion loss disproportionately benefited certain groups at the expense of the wider economy. Of this, N3.9 trillion was lost from the non-oil sector, reducing tax revenue that could have supported public services and infrastructure.
The World Bank further explained that Nigeria officially ended its forex subsidy policy in February 2024, following an earlier announcement by the Central Bank in July 2023. Prior to the unification of the forex rates, the significant difference between the official and parallel market rates meant that the government received less revenue from forex-linked income, such as oil and customs duties, as well as value-added tax (VAT) and company income tax (CIT), which are often paid in foreign currency.
The report stated, “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 World Bank highlighted that the unification of the forex rate has eliminated these revenue losses, which had skewed the competitive landscape in favour of those with preferential access to foreign currency, thereby distorting the economy. In 2022 alone, the implicit forex subsidy cost the government N6.2 trillion, more than the N4.5 trillion spent on the Premium Motor Spirit (PMS) subsidy.
The Bretton Woods institution stressed the importance of maintaining a unified forex rate to prevent further fiscal losses and urged the government to continue this policy for the benefit of the economy.
“Maintaining the unified FX rate that Nigeria has achieved since February 2024 is essential from a fiscal perspective,” the report noted, adding that the reform also helps restore fiscal space by removing large distortions and reducing rent-seeking and illicit activity.
During the launch of the NDU report, Alex Sienart, the World Bank’s Chief Economist in Nigeria, explained that the recent increase in government revenue was largely due to the removal of the forex subsidy, which had a greater fiscal impact than the fuel subsidy removed in June 2023.
Sienart said, “The surge in revenue is largely due to the removal of the implicit subsidy, which was even larger than the PMS subsidy.”
He also pointed out that with the official exchange rate at N460 and the parallel market rate at N700 in 2022, the government lost approximately N250 for every dollar-denominated revenue.
This shift in forex policy marks a significant step toward fiscal consolidation and economic reform, with the government aiming to stabilise the naira and improve its overall financial position. Canada Amends Work Permit Rules for Nigerians and Other Foreign Students
