The World Bank says increasing fuel subsidy puts the Nigerian economy at a high risk as subsidy payments could significantly impact public finance and pose debt sustainability concerns.
In a Biannual report by the Washington-based lender, Nigeria is projected to have a 3.8 per cent growth in 2022, adding that as an oil-dependent country, weak oil production hampers economic recovery.
According to the World Bank, the high level of oil prices will affect countries that are shielding the impact on their consumers through fuel subsidies, such as Nigeria and Ethiopia.
It further added that the high cost of fuel subsidies, due to the increase in oil prices, may deteriorate the country’s fiscal balance.
In 2021, the Nigerian National Petroleum Corporation said fuel subsidy gulped N1.43tn, although there was no record for under-recovery in January.
The National Assembly has approved N4tn as fuel subsidy bill for 2022, which is an increase of 179.72 per cent over the previous year’s subsidy bill.
According to the World Bank, Country Director, Shubham Chaudhuri, Nigeria’s decision to postpone the full deregulation of the downstream sector of the petroleum industry by 18 months might cost the country over N4tn in subsidy payments on petrol in 2022.
The World Bank country director, however, noted that while the World Bank could come up with advice on subsidy removal, its role was certainly not to dictate as it had no ability to do such.