According to the World Bank, raising gasoline subsidies puts the Nigerian economy at risk since subsidy payments might have a substantial impact on public finances and raise worries about debt sustainability.
This was said by the Washington-based lender in a new biennial report titled Africa’s Pulse.
Nigeria is expected to develop at a rate of 3.8 percent in 2022, according to the bank, but as an oil-dependent country, the country’s economic recovery will be hampered by low oil production.
Despite the rise in oil prices, the expanding fuel subsidy poses a major risk to the country’s economic growth, according to the report.
“Growth in Nigeria is anticipated to improve to 3.8 percent in 2022 and stabilize at 4% in 2023-24,” the bank added.
In comparison to the previous prediction, real GDP growth was revised up by 1.2 percentage points for both periods. Nigeria’s economy is still heavily reliant on oil. Oil-related revenue accounts for 40-60% of overall revenue, while oil and gas exports account for 80-90% of total exports.
“The recovery effort was slowed by low oil production, which fell below the OPEC quota. The Nigerian economy’s growth prospects are somewhat bright thanks to high oil prices combined with reforms initiated by the passing of the Petroleum Industry Act and the completion of the Dangote refinery expected in 2023, though at a slower rate than the average seven percent during the boom period.
The National Assembly has adopted an N4 trillion fuel subsidy bill for 2022, representing a 179.72 percent increase over the previous year’s bill.
Experts, on the other hand, have warned the Federal Government that the N4 trillion gasoline subsidy bill will have a negative impact on the country’s economy.
Nigeria’s decision to postpone full deregulation of the downstream sector of the petroleum industry by 18 months, according to World Bank Government Director Shubham Chaudhuri, might cost the country over N4 trillion in fuel subsidy payments in 2022.
While the World Bank may provide advice on subsidy elimination, the country director underlined that the World Bank’s mission was not to dictate because it lacked the ability to do so.
“With economics, you’re not supposed to make a political decision,” Chaudhuri remarked. What you’re supposed to do is list the advantages and disadvantages of several options.
“So that’s what we’re doing; we’re just being very explicit that there will be a fiscal cost, and the fiscal cost is the number, which may be N4 trillion this year.”
Despite the fact that oil prices have risen, he claims that the increase in global crude oil prices isn’t benefitting Nigeria all that much.
According to industry numbers released on Sunday, the price of Brent crude, which is used to price Nigerian oil, was $118.11 per barrel at 5.06 p.m. Nigerian time, the same as the day before.
