Brent, the gauge of Nigeria’s crude oil, has jumped more than $20 a barrel since the start of the year amid escalating Russia-Ukraine tensions, a development that means an increase of Nigeria’s subsidy bill of N3 trillion.
The global benchmark, Brent crude, gained more than 25 percent to $104 last Thursday before settling at $99 on Friday, after Russia’s attack on Ukraine and retaliatory sanctions from the West may signal good news to petrol-dollar economies like Nigeria.
The $103.43 per barrel oil price, traded above $40, a figure which is higher than the Federal Government’s oil benchmark price of $62 per barrel for the 2022 budget and oil production of 1.88 million barrels per day.
This means Abuja’s insistence on selling petrol well below half of the actual market price means Nigeria’s subsidy bill of N3 trillion may rise higher and move closer to Nigeria’s yearly revenue which stood at N5.09 trillion as at November 2021.
“The 2022 figure would be the highest on record, surpassing anything that Goodluck Jonathan paid. Nigeria is in a deeper financial hole than it has ever been, and the only thing the government has done is to dig even deeper,” Cheta Nwanze , a partner at SBM Intelligence, an Africa-focused geopolitical firm with extensive research network spread across Nigeria said in a note.
The 2022 budget targets revenue of N10.13 trillion and a deficit of N6.258 trillion.
However, if actual revenues look anything like what they have consistently done in the past five years, which is 55 percent of the budget on average, then Nigeria may use all of its hard earned revenues of N5.57 trillion to pay subsidies, analysts say.
That then leaves Abuja with a deficit of N10.82 trillion, the highest ever and equivalent to a full year’s entire budget. The budget for 2020, for instance, was N10.8 trillion.
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“Despite the return of the economy to positive growth – GDP has grown (not so robustly) for five straight financial quarters since the 2020 recession – there has been no attempt to explain how subsidy payments have ballooned so much,” Nwanze said.
Nigeria’s economy grew by 3.4 percent in 2021, the National Bureau of Statistics (NBS) said in February, marking the fastest growth rate in 7 years. But the economy is valued at only $436.29 billion, 20 percent less than it was worth in 2014 ($546.67 billion). In that time the population has grown 13 percent.
“The rallying oil price definitely means N3 trillion won’t be enough to pay for subsidy. Nigeria will have to increase its subsidy bill by at least 40 percent,” Joe Nwakwue, a former chair of the Society of Petroleum Engineers (SPE).
The above development means the ability of Nigeria’s three tiers of government to meet their various 2021 obligations is also under more risk as the Nigerian National Petroleum Corporation (NNPC) says it expended N210.38 billion on petrol subsidy in January 2022.
According to the latest document, obtained by BusinessDay, the shortfall included a December 2021 value of PMS shortfall of N176.48 billion plus the outstanding value shortfall recovery of N33.90 billion accrued over 2021.
The oil firm said it would deduct N242.5 billion (about N143.7 billion for January 2022 recovery and November spot arrears of N98.8 billion) during next month’s Federation Accounts Allocation Committee (FAAC) meeting.
Further checks showed that NNPC did not remit any money to the FAAC for onward distribution to the federating units –- an action that may lead to state governments’ inability to pay salaries.
Findings by BusinessDay showed FAAC allocation declined by 17 percent to N574.668 billions in January 2022.
According to the World Economic Report of October 2021, Nigeria ranked the third lowest in terms of Revenue to GDP ratio out of 196 countries in 2020, only behind Yemen (195th) and Somalia (196th).
Nigeria is in a precarious financial situation. External debt has risen from $10.71 billion in 2015 to $37.955 billion in September 2021, according to data from the Debt Management Office (DMO).
Investors are increasingly seeing Nigeria’s Eurobond as risky and are surprisingly demanding higher yields.
BusinessDay reported last Tuesday that a $4 billion Eurobond issued by the country had been suspended owing to poor market conditions.
“There is a clear change in the body language of the Buhari administration regarding its economic policy. It appears that the government has simply given up the fight and is just content to live out its remaining time in office,” Nwanze concluded.
