A World Bank report named “Nigeria Biannual Economic Update” has revealed that Nigeria spent N731 billion to subsidize petrol consumption in 2018.
According to This Day, the report which is a product of the staff of the World Bank shows key developments in the Nigerian economy and gives a summary of likely economic outcomes in the short-to-medium term as given by policy developments as well as highlights of key short term risks in the country.
It explained that within the year under consideration, Nigeria’s oil sector declined in its productivity, ending on 1.9 million barrels a day (mbd) production mark as against the government’s hope of 2.3mbd. Additionally, it stated that the Excess Crude Account (ECA), which provides the country some fiscal buffer, was virtually depleted even though prices of Nigeria’s Bonny Light blend was averagely $21 per barrel more than the oil price that was or budgeted for in the year.
Recall that the World Bank in November 2018 revealed in another report titled: ‘Nigeria Bi-annual Economic Update for Fall 2018,’ that petrol subsidy deductions for 2017 full year was N107.3 billion however its current report showed that N731 billion was spent in 2018 alone.
Furthermore, the report showed that most of the petrol volumes Nigeria spent money to subsidise in 2018 were inflated as daily consumption rose to 54 million litres per day (ml/d) from 40ml/d in 2017, ostensibly due partly to out-smuggling.
The report said “The oil revenues continue to underperform both relative to the budget targets and their realistic potential due to the unbudgeted fuel subsidy (Nigerian National Petroleum Corporation (NNPC) ‘cost under-recovery’), which amounted to N731 billion in 2018, among other discretionary deductions, and the dollar-naira conversion using an exchange rate lower than that prevailing in the convertible IEFX window”.
It further explained that “the NNPC’s financial reports indicate that about US$2 billion (equivalent to 0.6 per cent GDP) were deducted from the gross oil revenue prior to the transfer to the federation account for the unbudgeted fuel subsidy (‘cost under-recovery’).
Meanwhile, it mentioned that new investments in the sector have been limited, indicating that even with the strengthening of oil prices, the sector fell back into contraction in three out of four quarters of 2018. It further pointed that Nigeria faces the risk of reversion of procyclicality of fiscal policy which has important consequences for macroeconomic stability and the sustainability of growth.