The World Bank has revealed that Nigeria lost approximately N10 trillion in potential revenue in 2022 due to fuel subsidies and the practice of maintaining multiple exchange rates. This was disclosed by Indermit Gill, Senior Vice President of the World Bank Group, during the 30th Nigerian Economic Summit held in Abuja.
According to Gill, the country forfeited about N5.2 trillion, or 3% of its GDP, due to the pegging of the exchange rate. Additionally, fuel subsidies consumed about N4.5 trillion in the same year. Combined, these subsidies amounted to N10 trillion, or $15 billion, underscoring the significant financial impact on the nation.
“Let me illustrate how much oil wealth has been squandered in recent years,” said Gill. “Last year, before the reforms, the official exchange rate was around N455 to the dollar, while the parallel market rate was closer to N700. This gap meant that for every dollar allocated at the official rate, the government lost about N250.”
He further explained that the total loss in foregone revenue from oil, customs duties, and taxes amounted to N5.2 trillion in 2022. Meanwhile, the cost of subsidizing Premium Motor Spirit (PMS) was another N4.5 trillion. Together, these two subsidies accounted for about 5% of Nigeria’s GDP in 2022.
Averting Economic Collapse
The World Bank also highlighted the critical state of Nigeria’s economy prior to the recent reforms introduced by President Bola Tinubu. According to Gill, the country was on the verge of collapse as the Central Bank resorted to printing money to finance fuel subsidies and the exchange rate differential. This practice had a ripple effect, inflating the cost of non-oil exports by as much as 35%.
“The previous policies led to significant fiscal costs and an implicit tax on non-oil exports, including manufacturing and agriculture,” Gill noted. “As a result, debt service consumed nearly all government revenues by 2022, pushing Nigeria to the brink of a full-blown crisis and eroding confidence in the naira.”
Gill emphasized that the ongoing reforms, including the removal of the fuel subsidy and the unification of exchange rates, were necessary steps to steer Nigeria away from economic collapse. He urged the government to continue implementing these policies to restore fiscal stability and rebuild confidence in the country’s economic future.
