Full year estimate for petrol subsidy payment for 2022 will hit nearly sixteen billion dollars or double the total expenditure budget of all the thirty-six states in 2021 according to leading economist Bismarck Rewane.
Last year, all the 36 states spent the equivalent of $9.8bn, half what the nation will spend this year to cover the controversial petrol subsidy payments which goes largely to supporting the country’s elite, according to the World Bank.
Subsidy payments have risen steadily from the N2.09trn spent in the years from 2015 to 2020 and the N1.57trn spent last year.
In the first half of this year alone, a staggering N2.6trn was spent on subsidy, Rewane says.
He said moving petrol price to a mere N215 per litre in Nigeria will add a whooping N1.25trn to the federal allocation account in one year.
Currently the daily spend on maintaining the petrol subsidy is at a high of N18.4bn.
Rewane who spoke at the breakfast meeting of the Lagos Business school, asked his guests who were mainly company CEOs if they thought Nigeria’s economy had seen its worse of if the worst was yet to come. Most said they believed the worse was still to come.
Many of the country’s states are slipping into insolvency and while debt is piling up and it is expected that if nothing drastic is done, some states will be unable to cover the monthly salary bill of their workers.
The huge subsidy bill accounts for more than half of the N11trn budget deficit which the federal government is projecting for 2023 but it is unclear how this huge gap will be funded.
When vice president Yemi Osinbajo met with the World Bank president in Washington last week, he was told the government has to do something fast about the subsidy to stall Nigeria’s steady slide towards an economic collapse.
According to Raju Awasthi, senior public sector specialist at the World Bank, the huge subsidy bill can be termed an existential crisis for Nigeria and its 200 million people.
Awasthi said Nigeria is in an unfavourable economic situation due to dwindling revenue, the continued payment of trillions of naira on fuel subsidy by the government and the attendant economic challenges like Rewane, the World Bank expert maintained that Nigeria would have no choice but to get rid of subsidy eventually.
“Nigeria has the largest economy in Africa and the largest country in Africa by population, so it is critical to Africa’s progress. There is no doubt about that,” Awasthi said.
“But the government of Nigeria, from the public finance perspective, is facing an existential threat. Let’s not downplay the situation. That is the actual reality.
“Nigeria is 115th out of 115 countries in terms of the average revenue to Gross Domestic Product ratio. Despite the oil prices rising the way they have been, net oil and gas revenues have been coming down because of the tremendous impact of the subsidy.
“So, what is going to happen in 2022? The federation’s revenues are going to be significantly lower. They are already very low, and Nigeria is already the lowest in the world out of 115 large countries and this year, it’s going to be lower than what it was in 2020 because of the debilitating impact of fuel subsidy.”
Speaking in an interview from Egypt days ago, finance minister Zainab Ahmed ruled out Nigeria taking on an International Monetary Fund program to address the country’s fiscal challenges, which include plummeting revenues and rising debt service costs.
