At the current N500 billion monthly, Nigeria could pay out as much as N6 trillion in oil subsidies in 2022 if oil prices continue to rise and urgent actions are not taken to reverse the trend, the International Monetary Fund has warned.
Ari Aisen, Resident Representative for Nigeria, raised the concerns while presenting the latest Sub-Saharan Africa Regional Economic Outlook in Abuja
The figure is almost one third of the N17.319 trillion, 2022 federal government budget; nearly N6.9 trillion planned recurrent spending; and well above the N5.96 trillion for capital expenditure.
Just last month, the National Assembly, on President Buhari’s request, approved N4 trillion for subsidy payment in the amended 2022 Appropriation Act, from the earlier N3.557 trillion.
Aisen said it was worrying that as an oil exporter, Nigeria is not able to take advantage of the current high oil prices to build reserves, but rather faces low earnings due to the huge subsidy on petroleum products.
According to him, with a monthly N500 billion petrol subsidy bill, the nation could hit a record N6 trillion subsidy, at the end of the year.
He, however, raised the hope that if Dangote Refinery is able to resume operations within the year as planned, it could help cut down fuel imports as well as reduce the subsidy burden.
Aisen also disclosed that Nigeria has so far accessed as much as $6. 8 billion facilities between 2020, in the wake of the COVID-19 Pandemic till date from the IMF.
According to him, Nigeria received $3. 4 billion in Special Drawing Rights and a similar amount as loan from the Fund.
He equally expressed concerns that many African countries, including Nigeria, would face a critical problem with debt servicing unless actions were immediately taken to significantly raise revenue.
The federal government had planned N3.61tn for debt service in the 2022 budget, about 21% of total expenditure, and 34% of total revenues
But Aisen said the IMF was concerned that over 80 per cent of federal government revenue was going into debt servicing, describing it as an “existential problem.”
“It is a reflection of low revenue,” he stated.
“It is an existential issue for Nigeria. It is essential for macro-economic stability. It is important for the provision for social service.”
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On the economic outlook for the region, he identified key priority areas, including how to reduce debt vulnerabilities; balance inflation and growth; and manage foreign exchange rate pressures.
According to him, “with unrivaled potential for renewable energy and an abundance of minerals, a successful transition offers opportunities for diversification and job creation; ensuring the green transition is also a just transition.”
The IMF Representative said that fragile and conflict-affected African countries were at the risk of falling further behind in terms of development, especially now that the world economy was faced with an unprecedentedly high energy and food prices.
He said that the Fund had done a lot to help African countries, South of the Sahara, having given them the $23 billion Special Drawing Rights allocation and planning to re-channel additional $100 billion SDR from developed countries.
But Africa needs $425 billion to recover from the COVID-19 pandemic, in addition to $30–50 billion per year for climate adaptation and $ 6-10 billion annually for commodity import.
In his remarks, Ben Akabueze, Director-General of the Budget Office disagreed with Aisen on his debt service/revenue figures.
Akabueze rather claimed that the federal government debt service/revenue was 76 per cent, but admitted that even at that level, it was way far too high and a challenge.
“There is no doubt that the debt servicing –revenue is way beyond what we want it to be,” adding that the federal government had taken steps to significantly increase revenue.
He added that additional revenue was the only choice before the government but assured that the nation would not default in its debt servicing obligations, having made it a priority.
Akabueze blamed vested interests for the government’s inability to remove petrol subsidy very difficult over the years saying, “when you try to remove subsidy or raise tariffs, you get summons, you see resolutions get passed, asking you not to.”
He said that when the executive prepared the 2022 budget, it was with the understanding that the petrol subsidy would be removed but that somehow, that move was frustrated.
