Subsidy overtakes health, education, welfare budgets, World Bank warns Nigeria

The World Bank says the cost of fuel subsidy in Nigeria has exceeded the government’s spending on health, education and social protection for Nigerians.

It therefore said that removing fuel subsidy would help the government towards its poverty reduction scheme.

The Washington-based lender said this in its latest Nigeria Development Update report, titled, ‘The Continuing Urgency of Business Unusual’, which was released on Tuesday.

The report reads in part, “In 2021, Nigeria’s petrol subsidy cost around $4.5bn, or roughly two per cent of GDP, far exceeding federal government spending on health, education, and social protection.

“Therefore, diverting spending away from the petrol subsidy towards more pro-poor causes could help spread the gains of growth, which is essential for reducing poverty.”

According to the bank, Nigeria is not benefiting from high oil prices due to lower oil output and fuel subsidy cost.

The report also said, “The cost of the petrol subsidy will increase significantly as higher global petrol prices will entail larger subsidy payouts if pump prices continue to be frozen.

“The removal of the subsidy that the authorities had originally planned by mid-2022 was postponed until 2023 or later, which is expected to generate considerable fiscal costs.

“The 2022 amended budget (yet to be adopted at the time of this publication) allocates N4tn (almost two per cent of Gross Domestic Product) for the petrol subsidy, higher than the combined budget allocated for education, health, and social protection.”

As of May 2022, the oil production output stood at 1.5 million barrels per day, which is the lowest in 15 years.

It was further stated that the fuel subsidy is estimated to cost the government over $9bn in 2022, which is almost two per cent of the Gross Domestic Product.

The report added, “Due to the petrol subsidy and low oil production, Nigeria faces a potential fiscal time bomb.”

The Nigerian National Petroleum Corporation deducted a significant portion of the Federation’s oil revenues to pay for the petrol subsidy.

The World Bank encouraged the government to redirect the money spent on subsidy towards targeted and time-bound cash transfers and other priority investments in health, education, and critical infrastructure.

The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, has described the fuel subsidy as an unplanned deficit, which is hampering the government’s ability to invest in human capital development.

According to the finance minister, the government has to cut down on some investments and acquire more debts to fund fuel subsidy.

She said, “This PMS subsidy is costing us an additional N4tn than was originally planned. So, this is an unplanned deficit. We have gone to the National Assembly, and we have got approvals. The approval was simply to cut down on some of the investment costs. Some investments that we needed to make in the 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 money, which is very serious. Already, our borrowing has increased 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.

“It (petrol subsidy) is impeding the government’s ability to be able to invest in human capital development. N4.5tn is money that we could have invested in health or education, but we are now investing it on consumption, which is very wasteful. How many Nigerians own cars that are benefiting from this subsidy?”

Ahmed added that the government was planning to provide some form of cushioning support to reduce inflationary pressures on food and transport prices.e

In the area of transport, she said that the government is planning to help marketers that move diesel across the country with some form of relief. She added that the government was careful so that this relief does not transform form of subsidy.

She further said that Nigeria was not benefitting from oil revenues as the NNPC delivers zero revenue but asks for extra funds to finance fuel subsidy.

“NNPC is not just delivering zero revenue. We are also as a federation has to give them more money. The current subsidy regime imposed on us has gotten to a point where NNPC revenue is exhausted and they have to come to the federation to ask for more money. It is a very difficult situation,” she said.

The Governor of Anambra State, Prof Chukwuma Soludo, has also criticised the Federal Government for not removing fuel subsidy.