Subsidies exceed Nigeria’s health, education and social welfare budgets

Fuel subsidy


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

He therefore said that the removal of fuel subsidies would help the government to implement its poverty reduction program.

The Washington-based lender said so in its latest Nigeria Development Report, titled “Continued Urgency of Unusual Business,” which was released on Tuesday.

The report said in part: “In 2021, Nigeria’s oil subsidy cost about $4.5 billion, or about 2% of GDP, far exceeding federal government spending on health, education and welfare. social.

“Therefore, diverting spending from the gasoline subsidy to more pro-poor causes could help diffuse the gains of growth, which is essential for poverty reduction.”

According to the bank, Nigeria is not benefiting from high oil prices due to declining oil production and the cost of fuel subsidies.

The report also states, “The cost of the gasoline subsidy will increase significantly as rising global gasoline prices will lead to larger subsidy payments if pump prices continue to be frozen.

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

“The 2022 Amending Budget (which has not yet been adopted at the time of this publication) allocates N4tn (nearly two percent of gross domestic product) to the gasoline subsidy, an amount greater than the combined budget allocated to the education, health and social protection.”

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

It was further stated that the fuel subsidy would cost the government more than $9 billion in 2022, or almost 2% of gross domestic product.

The report adds: “Due to the gasoline 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 gasoline subsidy.

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

The Minister of Finance, Budget and National Planning, Ms. Zainab Ahmed, described the fuel subsidy as an unforeseen deficit, which hampers the government’s ability to invest in human capital development.

According to the Minister of Finance, the government must reduce certain investments and take on more debt to finance the fuel subsidies.

She said: “This PMS grant is costing us N4tn extra than what was originally planned. It is therefore an unforeseen deficit. We went to the National Assembly and we obtained approvals. The approval was simply to reduce some of the investment costs. Some investments that we needed to make in the oil and gas sector, that we are delaying and postponing, and reducing the deployment of those investments.

Also Read: Nigeria to Lose 5,000,000,000 Naira from Petrol Subsidies – World Bank

“But we also asked that we have to borrow money, which is very serious. Already, our borrowing has increased significantly and we are struggling to service debt, because even as income increases, expenses increase at a much higher rate.

“It (the oil subsidy) hampers the government’s ability 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 in consumption, which is very expensive. How many Nigerians own cars that benefit from this subsidy? »

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

On transport, she said the government plans to help traders who transport diesel across the country with some form of relief. She added that the government is ensuring that this relief does not turn into a form of subsidy.

She further said that Nigeria does not benefit from the oil revenue as the NNPC does not generate any revenue but is asking for additional funds to fund the fuel subsidy.

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

Anambra State Governor Prof. Chukwuma Soludo also criticized the federal government for not removing the fuel subsidy.