The World Bank reports that Nigeria lost over $8 billion due to the Central Bank of Nigeria’s (CBN) refusal to float the naira between 2021 and 2023. This foreign exchange subsidy, along with the fuel subsidy, deprived the government of revenue. The World Bank acknowledges the suffering caused by the government’s policies but insists they are necessary for long-term economic benefits. It urges the CBN to maintain its current monetary policy and emphasize the importance of a unified exchange rate.
World Bank: Nigeria Loses $8B on Foreign Exchange Subsidies Over 3 Years
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World Bank Recognizes Nigerian Reforms’ Negative Impact on Citizens
Between 2021 and 2023, Nigeria lost over $8 billion (NGN13.2 trillion) in foregone revenue as a consequence of the Central Bank of Nigeria (CBN)’s refusal to float the naira, the World Bank has said. The CBN policy, described as a foreign exchange subsidy, saw the central bank commit resources to maintaining an exchange rate that overvalued the naira.
According to a local report, the foreign exchange subsidy, along with the decades-old fuel subsidy, deprived the Nigerian government of vital revenue streams. Since May 2023, the Nigerian government has moved toward market-based pricing of petrol, while the CBN has adopted a floating exchange rate regime. From an exchange rate of under NGN450 per dollar at the start of 2023, the naira currently trades at around NGN1,600 per greenback.
While both measures have won praise from the World Bank and other global institutions, their immediate impact on the Nigerian populace has sparked concerns about social and civil unrest. In August, those concerns became a reality when Nigerian youths, perhaps inspired by their Kenyan peers, took to the streets to protest the economic hardships among many grievances.
Nigeria Urged to Stay the Course
In its latest Nigeria Development Update, the World Bank acknowledges that the policies of President Bola Ahmed Tinubu’s government have caused suffering. However, the bank insists the Nigerian government is on the right path and must stay the course.
“The new policy direction is essential, but in the short-term it has added to already intense pressures on households and firms. The indications that the macroeconomic situation is improving are encouraging, providing oxygen to the economy and the necessary condition for growth to ignite, with the help of additional, complementary measures,” the World Bank said.
The Bretton Woods institution also urged the CBN to maintain its current monetary policy “until a sustained disinflation path is achieved.”
Meanwhile, in its analysis of the cost of the foreign exchange subsidy, the World Bank said the estimated implicit “forgone revenues from the FX premium” exceeded the petrol subsidy. The bank argues that this underscores the importance of maintaining a unified exchange rate.
The bank said this foreign exchange policy is expected to have significant economic benefits beyond just fiscal gains. Ultimately, this policy is expected to create a more level playing field and improve the overall economic landscape.
