Nigeria’s full-year estimate for petrol subsidy payment for 2022 will hit nearly US$16 billion or double the total expenditure budget of all 36 states in 2021, according to a leading economist, Mr Bismarck Rewane.
Last year, all 36 states in the country spent the equivalent of $9.8 billion, half of what the nation will spend this year to cover the controversial petrol subsidy payments, which goes largely to supporting the Nigerian elite, according to the World Bank.
Subsidy payments have risen steadily from the N2.09 trillion spent in the years from 2015 to 2020 as against N1.57 trillion last year.
Rewane said that, in the first half of this year alone, a staggering N2.6 trillion was spent on subsidies.
He said moving petrol price to a mere N215 per litre in Nigeria will add a whooping N1.25 trillion to the federal allocation account in one year. Nigeria currently sells petrol at N165 per litre officially.
Currently, the daily spend on maintaining the petrol subsidy is at a high of N18.4 billion.
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 or 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 N11 trillion 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, David Malpass 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 a Senior Public Sector specialist at the World Bank, Raju Awasthi, 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 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”.
In an interview in Egypt a few days ago, Finance and National Planning Minister, Dr Zainab Ahmed ruled out Nigeria taking on an International Monetary Fund programme to address the country’s fiscal challenges, which include plummeting revenues and rising debt service costs.