The World Bank has said Nigeria was losing around N10 trillion in foregone revenue to fuel subsidy and multiple exchanges as of 2022 before the implementation of President Tinubu’s reforms.
The Senior Vice President of the World Bank Group, Indermit Gill, made this disclosure during the ongoing 30th Nigerian Economic Summit, organised by the Nigerian Economic Summit Group and the Ministry of Budget and National Planning on Monday in Abuja.
Gill said the country lost about N5.2 trillion or 3% of its GDP to the pegging of exchange rate alone in 2022; he also added that PMS subsidy gulped about N4.5 trillion in the same year.
According to him, altogether these two forms of subsidy resulted in a total of a staggering N10 trillion or $15 billion in the same year.
“Let me briefly take each one of these in turn to show you how much oil wealth has been squandered in the past, the very recent past. Last year before the reforms, the official rate was roughly N455/$. The freely determined parallel rate at that time was close to N700, meaning that for every dollar allocated at the official rate, the loss to the government was close to N250, every dollar.
“The total loss in foregone revenue of oil, custom import duties and taxes amounted to N5.2 trillion in 2022. This was more than 3% of GDP. You can do a lot with 3% of $300 billion.
“Now, the cost of subsidizing PMS and keeping its price below market level amounted to N5.7 trillion in 2022. That was another 2% of GDP. You can do a lot with 2% of GDP. Together, these two subsidies—the implicit one from the exchange rate and the explicit PMS subsidy—amounted to a staggering N10 trillion a year by 2022 or $15 billion at the free market exchange rate. You can do a lot with $15 billion,” Gill said.
Nigeria is on the brink of Collapse
The World Bank also noted that the country was on the brink of collapse before the introduction of the critical reforms of removal of subsidy and exchange rate unification.
The senior vice president of the Brentwood Institution observed that the Central Bank was only printing billions in ways and means advances to offset the cost of pegging the naira and explicit cost of fuel subsidy.
According to him, he said these previous policies resulted in about 35% per cent tax on non-oil exports, including manufacturing and agriculture.
“By the way, these were just a direct fiscal cost. The wider cost may have been even greater. They included a huge implicit tax amounting to 37 per cent on non-oil exports, including manufacturing and agriculture.
“Ways and means advances became the primary way of financing the government to offset the cost of exchange rate and PMS subsidy, this meant inflation of course.
As a result, debt service consumed all revenues by 2022, and the public debt was burgeoning. Nigeria was on the brink of a full-blown crisis and collapse in the confidence of the naira,” Gill added.
What you should know
- Upon assuming office, President Bola Tinubu initiated comprehensive reforms aimed at restructuring Nigeria’s fiscal environment. Key among these reforms was the removal of the petrol subsidy and the consolidation of the multiple exchange rate regimes.
- According to President Tinubu, these past policies had not only drained national revenue but also stifled investment.
- However, since the implementation of these reforms, the cost of living has surged, with inflation rising above 30%.
- Fuel prices have also soared, with the Nigerian National Petroleum Company (NNPC) adjusting pump prices to N998 in Lagos and N1,030 in Abuja.
