Recent increase in FG’s revenue largely due to removal of implicit FX subsidy – World Bank

Alex Sienart, the bank’s Chief Economist in Nigeria stated this during his presentation at the launch of the recent edition of Nigeria Development Update (NDU) titled, “Staying the course; Progress amid pressing Challenges”  

According to him, the implicit FX subsidy in 2022 was larger than the much talked about fuel subsidy which was removed in June 2023.

He said, “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.”  

“So this surge in revenue is largely due to the removal of implicit subsidy which was even more larger than the PMS subsidy that we talk about. So if you look, in 2022 the PMS subsidy was around N5 trillion but if you look at the revenues the federal government should have been getting from anything dollar-related be it oil revenues and taxes, customs, etc that hit N6 trillion in 2022. So the combined cost was N10.7 trillion or 5% of GDP and that was what was driving the accumulation of Ways and Means.”  

He also explained that with the official exchange rate in 2022 being around N460 and the parallel being around N700, the federal government was losing around N250 for every dollar denominated revenue.

Nigeria’s revenue in the first half of the year has soared by over 100% to N9.1 trillion on the back of savings from subsidy payments. The increase in the federal government’s revenue has put it on track to meet its revenue target of N18.32 trillion in the 2024 budget thereby keeping the fiscal deficit stable.

This represents a 140% increase in CIT payment by foreign companies as against the 35% increase in CIT payment by indigenous firms who always pay in Naira.