ACCORDING to the World Bank, raising fuel subsidies puts the Nigerian economy at risk since subsidy payments might have a substantial impact on public finances and raise worries about debt sustainability.
This was said by the Washington-based lender in a new biennial report titled Africa’s Pulse.
Nigeria is expected to develop at a rate of 3.8 percent in 2022, according to the bank, but as an oil-dependent country, the country’s economic recovery will be hampered by low oil production.
The report reveals that despite the rise in oil prices, the expanding fuel subsidy poses a major risk to the country’s economic growth.
The bank said, “Growth in Nigeria is forecast to increase to 3.8 per cent in 2022 and stabilise at 4 per cent in 2023-24. Real GDP growth was revised up by 1.2 percentage points for both periods compared with the previous forecast. Nigeria’s economy is still dependent on the oil sector. Oil-related revenue contributes 40 to 60 per cent of fiscal revenue, while oil and gas account for 80 to 90 per cent of total exports.
“Weak oil production, below the OPEC quota, held back the recovery process. Although at a slower pace than the average seven per cent during the boom period, growth prospects for the Nigerian economy are somewhat bright thanks to high oil prices coupled with reforms initiated by the passing of the Petroleum Industry Act and the completion of the Dangote refinery expected in 2023.
“Risk remains high on increasing fuel subsidies, which could weigh heavily on public finance and pose debt sustainability concerns. Nevertheless, public debt as a percentage of GDP is currently moderate.”
According to the World Bank, nations like Nigeria and Ethiopia would be affected by high oil prices since they are protecting their consumers with fuel subsidies.
It went on to say that the hefty cost of fuel subsidies, owing to rising oil prices, might wreak havoc on the country’s fiscal balance.
According to the Nigerian National Petroleum Corporation, despite no record of under-recovery in January, fuel subsidy swallowed N1.43 trillion in 2021,
The National Assembly adopted a N4 trillion fuel subsidy bill for 2022, representing a 179.72 percent increase over the previous year’s bill.
However, experts have warned the Federal Government that the N4tn fuel subsidy bill would adversely affect the country’s economy.
The Country Director, World Bank, Shubham Chaudhuri, had said Nigeria’s decision to postpone the full deregulation of the downstream sector of the petroleum industry by 18 months might cost the country over N4tn in subsidy payments on petrol in 2022.
The World Bank country director, however, noted that while the World Bank could come up with advice on subsidy removal, its role was certainly not to dictate as it had no ability to do such.
Experts, on the other hand, have warned the Federal Government that the N4 trillion gasoline subsidy bill will have a negative impact on the country’s economy.
Nigeria’s decision to postpone full deregulation of the downstream sector of the petroleum industry by 18 months, according to World Bank Government Director Shubham Chaudhuri, might cost the country over N4 trillion in fuel subsidy payments in 2022.
While the World Bank may provide advice on subsidy elimination, the country director underlined that the World Bank’s mission was not to dictate because it lacked the ability to do so.
Chaudhuri said, “With economics, really, you are not meant to make a political decision. What you are meant to do is to lay out what are the cons and consequences of different decisions.
“So that is what we are doing, we are just being very clear that this would come with a fiscal cost and the fiscal cost is the number, perhaps N4tn this year.”
Despite the fact that oil prices have risen, he maintains that the increase in global crude oil prices isn’t benefitting Nigeria all that much.
Also according to industry figures released on Sunday, the price of Brent crude, which is used to price Nigerian oil, was $118.11 per barrel at 5.06 p.m. Nigerian time, the same as the day before.
