President Muhammadu Buhari’s administration has said it must cut petrol subsidies and boost revenue collection in order to avoid a sharp deterioration in government finances next year, according to the Budget Office.
According to a Bloomberg report, if the President does not heed, Nigeria’s budget deficit could rise to N12.4 trillion, or $29 billion next year — almost three times its total revenue, or 5.5% of gross domestic product, reports.
The bleak prognosis associated with the insistence to continue paying fuel subsidies is the highlight of a medium-term expenditure framework published on the Budget office’s website. The subsidies will cost N6.72 trillion, it said. The budget shortfall would balloon from a projected 7.35 trillion naira in 2022 despite plans not to fund capital expenditure in 2023 if the subsidy remains, the budget office said. The most likely outcome for Nigeria is that its outgoing government will be breaching the country’s Fiscal Responsibility Act that sets a budget-deficit threshold of 3% of GDP.
Only 5.9% of projected government revenue of 6.34 trillion naira will come from oil in 2023 “as it will be eroded by the fuel subsidy,” while the balance of funding will come from non-oil sources. Even in a situation in which the government does away with the subsidy by June, the budget deficit would still exceed 5% of gross domestic product, the office said.
The country spent N982 billion in the first quarter subsidising fuel, providing Nigerian drivers with among the cheapest pump prices in the world. The World Bank and International Monetary Fund (IMF) have repeatedly urged the government to remove the subsidy, which is forecast to cost the country at least $9.6 billion this year. With limited headroom for external borrowing, the government plans to fund the deficit mainly from local capital markets.
Domestic borrowing currently accounts for 60% of public debt, estimated at 41.6 trillion naira in March. Nigeria’s debt-service obligations are rising faster than revenue, pushing the country toward “high debt distress,” according to the Chief Executive Officer of Financial Derivatives Co. in Lagos, Bismarck Rewane.
The Federal Government generated N1.63 trillion of revenue in the first four months of the year, which was 49% below its target and less than the 1.94 trillion naira needed to cover debt-service payments.
Nigeria is missing oil-earnings forecasts because of widespread theft and pipeline vandalism, which are also keeping it from meeting its OPEC quota, according to the government. The Excess Crude Account, where the government saves surplus earnings from crude sales, had only $376,655 left in June because the government has been unable to earn enough from oil sales to deposit into the fund.