For cash-strapped Nigeria, it may not matter if oil prices top $100 per barrel this year, not with a controversial petrol subsidy that is set to gulp N3 trillion ($7.2 billion).
“Due to the projected subsidy on petrol imports this year, we estimate that the increase in oil prices may be net negative for government revenues,” Shubham Chaudhuri, the country director for Nigeria at the World Bank, said during the Deloitte Economic Outlook conference, Thursday.
If the World Bank’s estimate turns out correct, then Nigeria would spend all of the extra income from higher oil prices and some more to maintain the subsidy.
The government this week shelved plans to ditch the costly petrol subsidy by July and will now keep the practice for another 18 months, a delay the
World Bank estimates could deprive the country of up to N3 trillion in lost income.
The state-oil company, NNPC, has already presented a N3 trillion subsidy bill for 2022 to the finance ministry according to Zainab Ahmed, the finance minister.
Read also: 2022 budget: Nigeria to spend N3trn on subsidy
The subsidy in 2022, a more than 100 percent increase from last year’s bill means Nigeria can not benefit from higher oil prices which should have translated to higher income this year.
Brent Crude, the global benchmark, sold for $90.34 per barrel as of 1:10pm on Thursday, the highest since 2014, with forecasts pointing towards a $100 per barrel price.
“The higher oil prices go, the higher the subsidy bill,” said Tajudeen Ibrahim, head of research at investment bank, Chapel Hill Denham.
“Bond investors are ignoring the rising oil price as a result and that is why the country’s cost of borrowing is at a 15-month high,” Ibrahim said.
Compounding the impact of the subsidies is Nigeria’s dwindling crude output, leaving the nation unable to meet its quotas under a pact with the OPEC+ alliance.
As of November 2021, the country was pumping at least 500,000 fewer barrels a day than its capacity, according the Nigerian Governors’ Forum, a body representing the interests of the 36 state governments.
Oil earnings were only a little over half the government’s target in the first 11 months of last year, bringing in just N970 billion.
The fiscal outlook in Africa’s largest economy does not look good as it’s unlikely to benefit even if crude prices remain high.
