The Nigerian Economic Summit Group (NESG) and oil marketers, working under the auspices of the Petroleum Retail Outlet Owners Association of Nigeria, are concerned about an impending fiscal crisis in Nigeria as the subsidy on Premium Motor Spirit (PMS), also known as petrol, continues to rise.
NESG expressed its concern in the group’s September 2022 report titled “The State of Nigeria’s Economy,” which was obtained in Abuja on Monday, as figures from the Nigerian National Petroleum Company (NNPC) Limited showed that petrol subsidies consumed ₦2.04 trillion between January and July of this year.
NNPC stated that its under-recovery of PMS/value shortfall, also known as fuel subsidy, was ₦210.38 billion, ₦219.78 billion, ₦245.77 billion, and ₦271.59 billion in January, February, March, and April 2022, respectively.
Petrol subsidies consumed ₦327.07 billion in May, N319.18 billion in June, and ₦448.78 billion in July, respectively. The total amount spent on PMS subsidies during the seven-month period was ₦2.04 trillion.
Despite a rise in crude oil prices in 2022, the NESG observed in its most recent report on the state of Nigeria’s economy that the Federal Government’s massive fuel subsidy spending had been a drain on the country’s revenue.
“In line with historical precedent, Nigeria’s fiscal space has been largely unimpressive, primarily on the revenue side, alongside a growing fiscal deficit,” the group stated.
“Despite an increase in global oil prices, the Federal Government’s actual revenue (₦1.63tn for January – April 2022) is short of the pro-rated budget (₦3.32tn), while government spending (₦4.72tn for January – April 2022) was significantly closer to the budgeted levels (₦5.77tn for January – April 2022).”
The NESG stated that the government should reduce its fiscal deficit in order to avoid a fiscal crisis, citing the gradual withdrawal of fuel subsidies as one measure to accomplish this.
‘Begin the gradual phase-out of the fuel subsidy program,’ the economic think-tank advised the Federal Government, emphasizing that continuing the program would be “disastrous.”
“Aside from taking a clear position on the fuel subsidy issue, the Federal Government must begin the shutting down phase of subsidy programmes to save the country from impending fiscal crisis.
“Understandably, this suggestion will affect the welfare of the citizens, but it is only in the short term.
“On the other hand, the more extended effects of sustaining this programme are disastrous.”
Billy Gillis-Harry, President of the Petroleum Retail Outlet Owners Association of Nigeria, stated that petrol subsidies should be discontinued immediately.
The subsidy paid on gasoline should be discontinued. “The funds should be redirected to other development projects such as health care, refineries, and so on.
“Since the refineries have not been successfully fixed by the government,” Gillis-Harry added, “they should either give it entirely to private sector practitioners such as PETROAN, which owns the retail outlets for which the products are refined, to manage.”
Concerned that the subsidy would cause petrol to sell for around ₦500/litre, the PETROAN president stated, “This subsidy that we are talking about, what is its practical performance in the everyday life of a Nigerian?” That is the question we must ask.
According to Gillis-Harry, Nigeria may continue to borrow to fund its projects, but it may reduce the amount borrowed by ceasing to spend on petrol subsidies.