According to the World Bank, Nigeria was losing almost ₦10 trillion in income due to fuel subsidies and multiple exchanges as of 2022 before President Tinubu’s reforms.
This revelation was made by Indermit Gill, Senior Vice President of the World Bank Group, on Monday in Abuja during the 30th Nigerian Economic Summit, hosted by the Nigerian Economic Summit Group in collaboration with the Ministry of Budget and National Planning.
In 2022, the country lost almost N5.2 trillion, or 3% of its GDP, due to the pegging of the currency rate alone, according to Gill. In the same year, PMS subsidies consumed roughly N4.5 trillion.
He claims that the combined amount of these two types of subsidies in the same year was an astounding N10 trillion, or $15 billion.
“Let me briefly take each one of these in turn to show you how much oil wealth has been squandered in the past, the very recent past. Last year before the reforms, the official rate was roughly N455/$. 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 explained.
Nigeria Is About To Implode
The World Bank also pointed out that prior to implementing the crucial reforms of currency rate unification and subsidy reduction, the nation was on the verge of collapse.
The Brentwood Institution’s senior vice president noted that the Central Bank was only creating billions in ways and means advances to cover the explicit cost of fuel subsidies and the expense of pegging the naira.
He claimed that these earlier policies imposed a tax of roughly 35% on exports other than oil, such as those from manufacturing and agriculture.
“By the way, these were only direct financial expenses. 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 verge of a full-fledged catastrophe, with the naira’s confidence crashing,” Gill explained.
What To Note
As soon as President Bola Tinubu took office, he started extensive measures to restructure Nigeria’s budgetary environment. The elimination of the petrol subsidy and the unification of several exchange rate regimes were two of these reforms’ most important components.
President Tinubu claimed that these previous policies had discouraged investment in addition to draining the nation’s coffers.
However, the cost of living has increased, and inflation has risen above 30% since these policies were implemented.
With the Nigerian National Petroleum Company (NNPC) raising pump rates to N998 in Lagos and N1,030 in Abuja, fuel costs have also skyrocketed.
