Nigeria’s federal government experienced a substantial surge in revenue, rising by 82.4% from N6.8 trillion ($9.0 billion USD at the 2023 average exchange rate) in 2023 to N12.4 trillion ($16.4 billion USD at the 2024 average exchange rate) in 2024. This impressive growth, as highlighted by the World Bank’s Nigeria Development Update report titled “Building Momentum for Inclusive Growth,” was primarily fueled by three key fiscal reforms implemented by the Nigerian government: the unification of foreign exchange rates, enhancements in tax administration, and reforms in treasury remittances from government agencies and enterprises. This revenue increase translated to a significant jump in the government’s revenue-to-GDP ratio, from a meager 2.9% in 2023 to a more respectable 4.5% in 2024. Despite this considerable improvement, the World Bank cautioned that Nigeria’s revenue base remains relatively low, constraining the government’s capacity to finance crucial development expenditures.
The unification of the official and parallel market exchange rates proved to be a major catalyst for revenue growth. Prior to the unification, government revenue from oil sales, customs duties, and other foreign exchange-linked sources was remitted to the Federation Account at the official exchange rate, which was significantly lower than the parallel market rate. This discrepancy resulted in substantial revenue losses, estimated at N6.2 trillion ($8.2 billion USD at 2022 average exchange rate) in 2022 alone. The unification effectively eliminated this arbitrage opportunity and channeled the previously lost revenue back into government coffers. The move towards a market-reflective exchange rate brought greater transparency and efficiency to the management of foreign exchange earnings.
Another significant contributor to the revenue surge was the modernization and strengthening of tax administration. The deployment of the TaxPro Max platform by the Federal Inland Revenue Service (FIRS) played a pivotal role in enhancing tax collection efficiency. This digital platform streamlined tax processes, improved transparency, and facilitated easier compliance for taxpayers. Furthermore, the implementation of withholding Value Added Tax (VAT) at source by specific sectors significantly boosted VAT collection, as evidenced by an 86.1% increase in locally collected VAT in 2024. These measures broadened the tax net and reduced opportunities for tax evasion.
The third key driver of revenue growth was the reform of revenue remittances from Ministries, Departments and Agencies (MDAs) and Government-Owned Enterprises (GOEs). Before the reform, remittances from these entities were often inconsistent and lacked transparency. The new policy, introduced in December 2023, standardized and automated the transfer of independent revenues directly to the treasury. This streamlined process enhanced accountability and resulted in a demonstrable increase in government revenue, contributing an additional 0.8 percentage points to Nigeria’s revenue-to-GDP ratio in 2024. This reform ensured that government revenues were consolidated effectively and utilized efficiently.
Beyond these achieved gains, the World Bank report also identified further potential for revenue improvement, particularly in customs collections. The report pointed out that existing trade policies, characterized by arbitrary tariff deviations, import bans, and numerous non-tariff barriers, were distorting prices, encouraging smuggling, and ultimately undermining customs enforcement. These practices are estimated to cost the country billions in lost revenue annually. The report estimated that eliminating these distortions and aligning tariffs with the Economic Community of West African States (ECOWAS) Common External Tariff (CET) could increase customs revenues by a significant 66%. This would not only bolster government revenue but also contribute to a more competitive and efficient trade environment.
The World Bank further argued that the current trade restrictions, particularly import bans, disproportionately impact poorer households. These restrictions increase prices, particularly for essential goods like food and medical products, thereby exacerbating cost-of-living pressures and hindering poverty reduction efforts. Lifting import bans, according to the World Bank estimate, could lower poverty rates by an estimated 2.6 percentage points. Moreover, with the naira now at a more competitive level owing to the exchange rate unification, domestic producers are better positioned to compete with imports and exploit export market opportunities. This necessitates easier access to imported intermediate goods and services for Nigerian firms, reinforcing the need for a more liberal trade policy framework.
In summary, Nigeria’s significant revenue increase in 2024 underscores the positive impact of fiscal reforms implemented by the government. The unification of the exchange rate, enhanced tax administration, and improved treasury remittances from MDAs and GOEs were instrumental in achieving this growth. However, the World Bank emphasized that further reforms, particularly in trade policy, are crucial for unlocking additional revenue potential and promoting inclusive growth. Eliminating trade distortions and aligning tariffs with the ECOWAS CET would not only boost government revenue but also benefit consumers through lower prices and increased access to essential goods, ultimately contributing to poverty reduction. This move towards a more open and competitive trade regime would further enhance Nigeria’s economic prospects.
