The World Bank says increasing fuel subsidy puts the Nigerian economy at a high risk as subsidy payments could significantly impact public finance and pose debt sustainability concerns.
According to the bank, Nigeria is projected to have a 3.8 percent growth in 2022, adding that as an oil-dependent country, weak oil production hampers economic recovery.
The increasing fuel subsidy poses a high risk to the country’s economic growth, despite increasing oil prices.
The bank said, “Growth in Nigeria is forecast to increase to 3.8 percent in 2022 and stabilize at 4 percent in 2023-24. 1.2 percentage points for both periods revised real GDP growth compared with the previous forecast.
“Nigeria’s economy is still dependent on the oil sector. Oil-related revenue contributes 40 to 60 percent of fiscal revenue, while oil and gas account for 80 to 90 percent of total exports.
“Weak oil production, below the OPEC quota, held back the recovery process. Although at a slower pace than the average seven percent 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, the high level of oil prices will affect countries shielding the impact on their consumers through fuel subsidies, such as Nigeria and Ethiopia.
It added that the high cost of fuel subsidies might deteriorate the country’s fiscal balance due to increased oil prices.
In 2021, the Nigerian National Petroleum Corporation said fuel subsidy gulped N1.43tn, although there was no record for under-recovery in January.
The National Assembly has approved N4tn as a fuel subsidy bill for 2022, increasing 179.72 percent over the previous year’s subsidy 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.
However, the World Bank country director noted that while the World Bank could come up with advice on subsidy removal, its role was certainly not to dictate as it could not do such.
Chaudhuri said, “With economics, you are not meant to make a political decision. What you are meant to do is lay out 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.”
He said that even though oil prices had gone up, the rise in global crude oil prices was not helping Nigeria that much.
Industry figures seen on Sunday showed that the price of Brent, the crude against which Nigeria’s oil is priced, was $118.11 per barrel at 5.06 pm Nigerian time, as it traded at the same rate the preceding day.
