The World Bank has warned the Nigerian Government that the increasing fuel subsidy puts the country’s economy at a high risk, noting that it could significantly impact public finance and pose debt sustainability concerns.
The international lender said this in its latest Africa’s Pulse, a biannual analysis of the near-term macroeconomic outlook for the region, published around the World Bank/IMF spring and annual meetings each April and October.
This is coming a few days after In 2021, the Nigerian Senate and Federal House of Representatives jointly approved N4trillion as fuel subsidy bill for 2022.
The new figure, it would be recalled, is about 179.72 per cent increase over the 2021 subsidy bill.
The World Banks claimed Nigeria is projected to have a 3.8 percent growth in 2022, adding that as an oil-dependent country, weak oil production hampers economic recovery.
The bank said, “Growth in Nigeria is forecast to increase to 3.8 per cent in 2022 and stabilise at 4 percent in 2023-24. Real GDP growth was revised up by 1.2 percentage points for both periods compared with the previous forecast. Nigeria’s economy is still dependent on the oil sector. Oil-related revenue contributes 40 to 60 percent of fiscal revenue, while oil and gas account for 80 to 90 percent of total exports.
“Weak oil production, below the OPEC quota, held back the recovery process. Although at a slower pace than the average seven per cent during the boom period, growth prospects for the Nigerian economy are somewhat bright thanks to high oil prices coupled with reforms initiated by the passing of the Petroleum Industry Act and the completion of the Dangote refinery expected in 2023.
“Risk remains high on increasing fuel subsidies, which could weigh heavily on public finance and pose debt sustainability concerns. Nevertheless, public debt as a percentage of GDP is currently moderate,” the report said.
The World Bank in the analysis said the high level of oil prices will affect countries that are shielding the impact on their consumers through fuel subsidies, such as Nigeria and Ethiopia.
It added that the high cost of fuel subsidies, due to the increase in oil prices, may deteriorate the country’s fiscal balance.
Shubham Chaudhuri, Country Director for Nigeria, World Bank, , had said Nigeria’s decision to postpone the full deregulation of the downstream sector of the petroleum industry by 18 months might cost the country over N4tn in subsidy payments on petrol in 2022.
The WB’s Country Director however, noted that while the World Bank could come up with advice on subsidy removal, its role was certainly not to dictate as it had no ability to do such.
He said, “With economics, really, you are not meant to make a political decision. What you are meant to do is to lay out what are the cons and consequences of different decisions.
“So that is what we are doing, we are just being very clear that this would come with a fiscal cost and the fiscal cost is the number, perhaps N4tn this year.”
The World Bank Director however noted that the rise in global crude oil prices was not helping Nigeria that much, despite rising global crude oil prices.