The World Bank has said the Federal Government incurred a significant loss of N13.2 trillion in foregone revenue as a direct consequence of the implementation of its foreign exchange (FX) subsidy policy in three years.
Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, said on October 17, that the FX subsidy era was gone.
Edun said the subsidy had cost the country over 5 percent of its gross domestic product (GDP) thereby causing financial strain.
In its latest Nigeria Development Update (NDU) report, the World Bank said the country lost N13.2 trillion as a total FX subsidy between 2021 and 2023.
The report showed that the total FX subsidy in 2021 was N2 trillion, N6.2 trillion in 2022 and N5 trillion in 2023.
World Bank said the foregone revenue only “benefitted certain groups at the expense of the entire country”.
The Washington-based institution also said the foreign exchange rate was closed in February 2024, thereby facilitating price discovery and FX supply, which is expected to be positive for trade, investment, and growth.
“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,” World Bank said.
“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.”
