The huge sum spent on the fuel subsidy payment is limiting the Federal Government’s ability to repay its debt of more than 40 billion naira, said Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed.
Nigeria’s debt position worsened in the first quarter of this year, with the country’s debt stock rising by N2.04 trillion to N41.60 trillion in the first three months of the year. This year.
The N41.6tn represents a leap forward from the debt figure of N39.56tn recorded by the country in December 2021.
The price of oil has hit its highest level of $123.7 a barrel in 14 years, and government circles fear the country could exceed its monthly fuel subsidy budget.
Experts are of the view that Nigeria may not be able to maximize the benefits due to the increased fuel subsidy burden.
In 2021, when the price of crude oil averaged $62 per barrel, the federal government spent a whopping N1.2 trillion naira on subsidizing gasoline.
In January, February, March and April this year, the Nigerian National Petroleum Company Ltd committed N210.38 billion, N219.78 billion, N245.77 billion and N271.58 billion respectively for the fuel subsidy payment, totaling N947.51 billion over the four-month period.
President Muhammadu Buhari had recently approved an increase in the estimated provision for the Premium Motor Spirit grant for 2022 of N442.72 billion from N3.557 billion to N4 billion.
The World Bank had estimated on Tuesday that the increase in the global price of crude oil would push the federal government’s fuel subsidy budget from 4 billion naira to about 5 billion naira by the end of the year.
But speaking at the hybrid launch of the World Bank’s Nigeria Development Update titled: “The Urgency of Unusual Business”, held in Abuja, Ahmed expressed concern that that the fuel subsidy scheme was hurting Nigeria’s ability to repay its debts.
The finance minister called on Nigerians to understand that the fuel subsidy leads to a massive tax burden, saying a situation where the federal government borrows for consumption is wasteful.
She lamented that the investments that were to be made in the oil and gas sector are being delayed and postponed to a later date due to the huge burden of fuel subsidies.
Ahmed said, “This Premium Motor Gasoline (PMS) subsidy is costing us an additional N4,000,000,000 compared to what was originally planned. It is therefore an unforeseen deficit. We went to the National Assembly; we got approvals, but the approval was just for us to reduce some of the investment costs.
“So the investments that we needed to make in the oil and gas sector that we are delaying and postponing to a later date and reducing the deployment of those investments. But we also asked that we have to borrow more, which is very serious.
“We already have borrowing which is increasing significantly and we are struggling to service the debt because even though income is increasing, spending has increased at a much higher rate, so it is a very difficult situation. “
She further explained that the PMS subsidy harms the nation and limits the government’s ability to invest in human capital development.
According to her, the N4trn earmarked for the fuel subsidy payment this year could have been invested in the health or education sector.
“But we invest it (N4trn) in consumption which is very expensive because how many Nigerians own cars that get this subsidy,” she asked.
She further pointed out that Nigeria was facing challenges due to the fact that it was not taking advantage of the current rise in oil prices.
The price of crude oil rose to its highest level in 14 years, reaching $123.7 a barrel last Thursday, on increased demand for black liquid following the energy crisis caused by the Russian-Ukrainian war.
This is the highest amount the product would be sold for since 2008. The last time the price of crude oil was this high was in 2008, when it sold for $145.31 on 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 crude oil price per barrel was $110.62, in 2014 $107.95, while in 2015, 2016, 2017, 2018, 2019, 2020 and 2021 it was sold at $61.36, $54.01, $60.46, $77.41, $66.24, $63.27 and respectively per barrel.
Rising oil prices were supported by robust demand from major global consumers as the war between Russia and Ukraine escalates.
But the finance minister lamented that three major factors are preventing Nigeria from benefiting from rising crude oil prices.
She added: “We are at a kind of crossroads. It is not hearsay that Nigeria has not gotten what it should from the current high crude oil prices, but rather rising crude oil prices pose significant fiscal challenges to our economy and may cause negative revenue and indeed we have already started to see that negative revenue.
“There are three factors that are preventing Nigeria from taking full advantage of the current boom in the international crisis. First, our forecast had fallen below Nigeria’s estimated capacity and OPEC’s quota due to insecurity-related vandalism and theft. Second, the domestic price of payments remained fixed, while global PMS prices continued to rise.
“Third is that rising international crude prices also increase the burden on PMS because we are buying refined petroleum products. The higher the price of crude oil on the world market, the more we pay for PMS, and by maintaining this PMS subsidy, we as a country are unfortunately forgoing investments that will have used the money in infrastructure, goods or essential services that would have increased the overall productivity of the nation. So that’s really the scourge of the major problem we’re facing now.