The World Bank has attributed the recent rise in Nigeria’s federal government revenue to the removal of the implicit foreign exchange (FX) subsidy. This revelation was made by Alex Sienart, the World Bank’s Chief Economist in Nigeria, during the presentation of the latest edition of the Nigeria Development Update (NDU) titled “Staying the Course: Progress Amid Pressing Challenges.”
According to Sienart, the implicit FX subsidy in 2022, which was quietly costing the government more than the widely debated fuel subsidy, has now been removed. He emphasized the significance of this move, stating, “We are seeing a fiscal consolidation underway with the fiscal deficit shrinking from 6.2% of GDP in the first half of 2023 to 4.4% of GDP in H1, 2024, and that is largely due to expenditure being roughly constant.”
Sienart elaborated on the scale of the FX subsidy, noting that the federal government lost around N250 for every dollar-denominated revenue due to the official exchange rate being N460 in 2022, compared to N700 in the parallel market. He remarked, “This surge in revenue is largely due to the removal of the implicit subsidy which was even larger than the PMS (fuel) subsidy. In 2022, while the PMS subsidy stood at N5 trillion, implicit FX-related losses from oil revenues, taxes, and customs hit N6 trillion. The combined cost was N10.7 trillion, or 5% of GDP.”
The removal of the FX subsidy has resulted in a dramatic increase in government revenues. In the first half of 2024, the federal government’s revenue surged by over 100%, reaching N9.1 trillion. This development puts the government on course to achieve its revenue target of N18.32 trillion for the year, keeping the fiscal deficit in check.
Additionally, Nigeria’s Customs Service (NCS) has reported a 127% increase in revenue, recording N2.7 trillion in the first half of 2024, surpassing its half-year target of N2.54 trillion. Sienart also highlighted the positive effects of foreign exchange market unification, which has boosted company income tax (CIT) payments from foreign companies by 140%, compared to a 35% increase in CIT payments from local firms.
