Fuel Subsidy Making It Difficult To Service Nigeria’s N41.6trn Debt, Finance Minister Laments

The huge amount being spent on payment of fuel subsidy is limiting the ability of the federal government to service it’s over N40trn debt burden, the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed has said.

Nigeria’s debt position worsened in the first quarter of this year as the country’s debt stock rose by N2.04trn to hit N41.60tn in the first three months of this year.

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The N41.6trn represents a quantum leap from the N39.56tn debt figure recorded by the country as of December 2021.

Oil price hit its highest level of $123.7 per barrel in 14 years, and there are fears in government circles that the country may surpass its monthly fuel subsidy budget.

Experts are of the view that Nigeria may not be able to maximize the benefits because of rising fuel subsidy burden.

As of 2021 when crude oil price averaged $62 per barrel, the federal government spent a whopping sum of N1.2trn subsidizing petrol.

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In January, February, March and April of this year, the Nigerian National Petroleum Company Ltd incurred N210.38bn, N219.78bn, N245.77bn and N271.58bn for payment of fuel subsidy respectively, giving a total of N947.51bn during the four-month period.

President Muhammadu Buhari had recently approved an increase in the estimated provision for Premium Motor Spirit subsidy for 2022 by N442.72bn from N3.557trn to N4trn.

The World Bank had on Tuesday estimated that the increase in global price of crude oil will push the fuel subsidy budget of the federal government from the current N4trn to about N5trn by the end of this year.

But speaking at the hybrid launch of the World Bank’s Nigeria Development Update titled: “The urgency for business unusual,’ held in Abuja, Ahmed expressed concern that the fuel subsidy regime was hurting Nigeria’s ability to service its debts.

The Finance Minister called on Nigerians to understand that fuel subsidy was causing a massive fiscal burden, saying a situation whereby the federal government borrows for consumption was wasteful.

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She lamented that investments that were needed to be made in oil and gas sector are being delayed and deferred to a later time because of the huge fuel subsidy burden.

Ahmed said: “This premium motor spirit (PMS) subsidy is costing us an additional N4trn than was originally planned. So, this is an unplanned deficit. We have gone to the National Assembly; we have gotten approvals, but the approval was simply for us to cut down on some of the investment costs.

“So, investments that we needed to make in oil and gas sector which we are delaying and deferring to a later time and reducing the rollout of those investments. But we also had asked that we needed to borrow more which is very serious.

“Already we have borrowing increasing significantly and we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate so it is a very difficult situation.”

She explained further that PMS subsidy is hurting the nation and limiting the government’s ability to be able to invest in human capital development

According to her, the N4trn projected for payment of fuel subsidy this year could have been invested in health or education sector.

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“But we are investing it (N4trn) in consumption, which is very wasteful, because how many Nigerians own cars that are benefiting from this subsidy,” she queried.

She further pointed out that Nigeria was facing challenges from not gaining from the current oil price rally.

Crude oil price rose to its highest level in 14 years hitting $123.7 per barrel last Thursday, following higher demand for the black liquid as a result of the energy crisis caused by the Russian-Ukraine war.

This is the highest amount which the product would be sold since 2008. The last time the price of crude oil was as high as this was in 2008 when it sold for $145.31 per barrel.

In 2009, crude oil sold for $81.03, while in 2010, 2011 and 2012, it sold for $91.48, $113.39 and $109.39 per barrel respectively.

In 2013 the highest price of crude oil per barrel was $110.62, in 2014 $107.95 while in 2015, 2016, 2017, 2018, 2019, 2020 and 2021, it was sold for $61.36, $54.01, $60.46, $77.41, $66.24, $63.27, and $84.65 per barrel respectively.

The rise in oil prices was underpinned by robust demand in the world’s top consumers as the war between Russia and Ukraine intensifies.

But the Finance Minister lamented that three major factors are making it difficult for Nigeria to benefit from riding crude oil prices.

She added, “We are in some kind of crossroads. It is not hearsay to say that Nigeria has not derived what it should from the current high crude oil prices, rather rising crude oil prices are posing significant fiscal challenges to our economy and may lead to some negative receipts and indeed we have started seeing already those negative receipts.

“There are three factors preventing Nigeria from fully benefiting from the current boom in the international crisis. First of all, our prediction had fallen below Nigeria’s estimated capacity and the OPEC quota because of insecurity vandalism and theft. Secondly, the domestic price of payments has remained fixed, while global PMS prices have continued to rise.

“The third is that rising international crude prices also increases the burden of PMS because we buy refined petroleum products. The higher crude oil price goes in the global market, the more we’re paying for PMS, and by maintaining this PMS subsidy we as a country unfortunately forego investments that will have used the monies into essential infrastructure, goods or services that would have increased the overall productivity of the nation. So this is really the bane of the major issue that we’re facing now.”

ENDS

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