The World Bank has attributed Nigeria’s recent surge in federal revenue to the removal of the implicit foreign exchange (FX) subsidy, a factor that had previously weighed heavily on the nation’s fiscal balance. Alex Sienart, the bank’s Chief Economist in Nigeria, highlighted this development during the launch of the latest Nigeria Development Update (NDU), titled “Staying the Course: Progress Amid Pressing Challenges.”
Sienart explained that while much attention has been given to the removal of the fuel subsidy in June 2023, the implicit FX subsidy—which had been in place prior—was far more costly to the government. He noted that Nigeria’s fiscal deficit has shrunk significantly, from 6.2% of GDP in the first half of 2023 to 4.4% of GDP in the first half of 2024, largely due to constant expenditure levels coupled with increased revenue.
“The surge in revenue is largely due to the removal of the implicit FX subsidy, which was even larger than the PMS (petrol) subsidy we talk about. In 2022, the PMS subsidy amounted to about N5 trillion, but the implicit FX subsidy—revenues the federal government should have earned from dollar-related transactions such as oil revenues, taxes, and customs—accounted for N6 trillion. Together, the combined cost was N10.7 trillion, equivalent to 5% of GDP, which contributed to the accumulation of Ways and Means,” Sienart said.
The economist detailed how, in 2022, Nigeria’s official exchange rate was pegged at N460 to the dollar, while the parallel market exchange rate hovered around N700. As a result, the federal government was losing approximately N250 for every dollar in revenue from oil, taxes, and customs duties.
In the first half of 2024, the removal of this subsidy has been a key driver of a remarkable increase in Nigeria’s federal revenue, which has soared by over 100% to reach N9.1 trillion. This has placed the government on track to meet its revenue target of N18.32 trillion for the 2024 budget, helping to stabilize the fiscal deficit.
A major contributor to this revenue boost has been the performance of the Nigeria Customs Service (NCS), which has seen its revenues skyrocket. By linking duties collection to the official Central Bank of Nigeria (CBN) exchange rate, which now reflects market dynamics, customs revenues surged by 127%, reaching N2.7 trillion in the first half of 2024—well above its half-year target of N2.54 trillion.
Another significant factor driving the rise in revenue has been the unification of Nigeria’s multiple FX market segments. Following this policy, payments from foreign companies in Company Income Tax (CIT) increased dramatically. In the year after the unification, foreign firms paid N3.41 trillion in taxes, compared to N1.42 trillion in the preceding year—a staggering 140% increase. In contrast, local companies, which pay taxes in naira, saw a more modest 35% rise in CIT payments.
Sienart also reinforced the importance of Nigeria maintaining its current fiscal reforms to ensure sustained growth. He emphasized that international financial institutions, including the World Bank, have acknowledged that Nigeria is moving in the right direction under the leadership of the Central Bank. “The World Bank, rating agencies, and other international financial institutions are all saying the same thing: Nigeria’s policies are on track, and we need to stay the course to fully reap the benefits,” he added.
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