The World Bank has noted that Nigeria may spend up to $9 billion on fuel subsidies in 2022. This is contained in the Nigeria’s Development Update produced by the global apex bank.
According to the report, this figure is an equivalent of 2% of the country’s GDP. The World Bank noted that this high spending on subsidy is coming at a time where revenue from oil is dwindling as a result of low crude oil production in the country.
As at May 2022, the World Bank noted that Nigeria’s daily oil production stood at 1.5 million barrels per day, quoted as the ‘lowest in fifteen years’, with an average daily figure of 1.54 million barrels per day in the first four months of 2022. OPEC on the other hand reported an even lower daily production figure in May, saying Nigeria’s crude oil production stood at 1.024 million barrels per day.
The report warned that the subsidy will further dwindle the revenue of the country, impacting on the government’s ability to fund the 2022 budget. It further highlighted that with low crude oil production and high subsidy payments, Nigeria has been unable to benefit from the rise in crude oil prices globally.
Nigeria’s low crude oil production has been blamed on lack of adequate maintenance, sabotage among others.
The situation of low crude oil production and high subsidy payment is critical because, the Nigerian National Petroleum Corporation (NNPC) makes provision for subsidy from its revenue (known as under-recovery in its books), therefore, if there is low production and lower export of crude oil as a result, Nigeria will be paying heavily for subsidy from these low revenues, reducing already insufficient funds.
Alongside the World Bank’s projection on subsidy payments and revenue shortfall, the country’s public debt has also been projected to reach 36% of its Gross Domestic Product. The government’s fiscal deficit is also expected to reach 5.8%, up from an earlier prediction of 5.3%.
Nigerian states may also not be able to achieve their proposed level of expenditure in 2022, if the government continues to incur costs that reduce available revenue.
There are still long queues in different states of the country as a result of fuel scarcity, blamed partly on disagreement over the price of petroleum between marketers and the federal government.
Should the pump price of petroleum be increased as requested by the marketers, the country may be forced to pay more for subsidy, as a way to ensure that its citizens do not pay more; ramping up the revenue shortfall.
Although the Nigerian government had again attempted to remove the subsidy in 2021, it backtracked after public criticism. A recent comment by President Muhammadu Buhari quashed any hopes of subsidy removal.
Nigeria’s subsidy dilemma is further strengthened by absence of working refineries, leaving availability of refined petroleum at the mercy of crude oil prices at the international market which is made worse by a weak currency.