The cost of subsidy is estimated to increase by 369.93 per cent from 2021 to 2023.
In 2021, the Nigerian National Petroleum Corporation said fuel subsidy gulped N1.43tn, although there was no record for under-recovery in January.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, had said on Thursday at the presentation of the 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper in Abuja that the Federal Government had projected to spend N6.72tn on petrol subsidy payments in 2023.
However, Ahmed said subsidy payment projection was based on two scenarios, with the first being spending an estimated N6.72tn for the entire year and the second, removing subsidy by June 2023 with the government spending N3.36tn rather than the full estimated N6.72tn.
She further noted that both scenarios had implications for net accretion to the federation account and projected deficit levels.
In January this year, the Federal Government decided to retain the controversial fuel subsidy for another 18 months following threats of protests by the Nigerian Labour Congress and other interest groups.
The International Monetary Fund recently said the fear of political resistance, widespread corruption and pressure from interested groups were hampering the removal of the fuel subsidy in Nigeria.
In the first five months, Nigeria spent N1.27tn on petrol subsidy, with a plan to spend N4tn this year.
It was also disclosed that Nigerian National Petroleum Company Limited would continue to fund the N4.19tn fuel subsidies for the 2022 fiscal year on behalf of the federation despite being a commercial venture and its stance of no longer remitting any money to the Federation Accounts Allocation Committee for sharing to the three tiers of government monthly.
The increasing cost of fuel subsidy is projected to persist amid declining revenues and rising debts.
According to a recent media report, the FAAC allocation to the federal, state and local governments declined to 2.18tn between January and March 2022 when compared to the N2.24tn disbursed in the preceding quarter, Q4 2021.
The Debt Management Office recently disclosed that Nigeria’s total public debt stock increased to N41.60tn in the first quarter of 2022 from N39.56tn as of December 2021, showing an increase of N2.04tn within a period of three months.
During the presentation of the MTEF and FSP paper, the finance minister disclosed that the cost of servicing debt surpassed the Federal Government’s retained revenue by N310bn in the first four months of 2022..
It was disclosed the Federal Government’s total revenue for the period was N1.63tn, while debt service gulped N1.94tn.
The IMF has also said that Nigeria will likely depend on overdrafts from the Central Bank of Nigeria to fund its proposed petrol subsidy bill.
The finance minister has also said that Federal Government was planning to tap €2bn ($2.2bn) of the money it raised in a Eurobond sale last year and targets more local borrowing in 2022 to help fund fuel subsidy.
The World Bank recently warned that increasing fuel subsidy puts the Nigerian economy at a high risk as subsidy payments could significantly impact public finance and pose debt sustainability concerns.
Atiku slams FG
Meanwhile, the presidential candidate of the People Democratic Party, Atiku Abubakar, has said that Thursday’s revelation by Ahmed that the cost of servicing Nigeria’s debt has surpassed the Federal Government’s retained revenue by N310bn in the first quarter of the year is very worrisome.
In a statement, Atiku said, “First, this action must be in breach of all known reasonable debt-sustainability thresholds. Second, it puts a big question mark on the capacity of the government to manage its rising debt profile without endangering macroeconomic stability. Indeed, I am concerned that this action is already exposing Nigeria to financial stability issues as we slip from a medium risk of debt distress to high risk of debt distress.
“I had on several occasions warned that not only is the fiscal cost of government’s indiscriminate borrowing so enormous but has even greater opportunity costs as we sacrifice investments in critical areas, including education, health, and other basic services. This is certainly detrimental to Nigeria’s long-term growth.”
As a way forward, the PDP candidate recommended what he described as urgent steps the government needed to take address the situation.
He said, “Take immediate steps to slow down the rate of debt accumulation by promoting more Public Private Partnerships in critical infrastructure funding and identifying more innovative funding options. Review the current utilization of all borrowed funds and ensure that they are deployed more judiciously. Specifically, government must ensure that all borrowed funds are for priority infrastructure projects that would generate income, boost output, and put the economy on the path of sustainable growth;
“Review the country’s debt strategy by focusing on concessional and semi-concessional sources with lower interest rates and relatively long-term maturity. The government must reduce the issuance of short-dated debt instruments; take steps to improve its spending efficiency and drastically cut unnecessary and wasteful expenditures.”