The World Bank says Nigeria incurs a loss of N13 trillion due to foreign exchange subsidies.
The world financial institution urged the government to maintain a unified exchange rate, which would help rectify the significant distortions created by the previous administration and ultimately benefit the economy.
The world report indicated that the government experienced losses of N2 trillion in 2021, N6.2 trillion in 2022, and N5 trillion in 2023.
The Bretton Woods report says, “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.
“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.
“The estimated implicit forgone revenues from the FX premium were even larger than the PMS subsidy, underscoring the importance of maintaining a unified FX rate.
“In 2022, when the cost of the PMS subsidy reached N4.5tn, representing 2.2 per cent of the Gross Domestic Product, the revenues forgone that emerged due to the large parallel rate premium are estimated to have been N6.2tn, representing 3 per cent of GDP.
“N4.5tn of FX revenue was forgone from gross oil revenues and N1.7tn from the FX revenue forgone from non-oil tax revenues.
“These findings demonstrate that the FX unification reform not only addresses distortions in the FX market and the real economy but also has a substantial impact on restoring fiscal space.
“Therefore, maintaining the unified FX rate that Nigeria has achieved since February 2024 is essential from a fiscal perspective.
“It should be noted that in addition to the large estimated fiscal benefits, the FX reform is also expected to benefit the economy by removing the large distortions the previous regime imposed, such as skewing the competitive landscape in favour of importers with preferential access to FX, making it more difficult and less profitable to export, and fueling rent-seeking and illicit activity.”
