The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, has described the current fuel subsidy on Premium Motor Spirit as a huge problem for the government.
She also stated that the government had quietly removed all
subsidies in the power sector.
Ahmed who said these on Friday during a virtual meeting of
African finance ministers and the International Monetary Fund, explained that
the subsidy on petrol has pushed government’s deficit far higher than was
initially planned when the 2022 budget was conceived.
The recent ban placed on Russian energy exports by the
United States, difficulty in financing oil transactions, as well as disruptions
in Russian oil exports have caused over 30 per cent spike in oil prices to
$130.
The Energy Intelligence estimates that Russian oil exports
have already dropped by 2.5 million barrels per day or one-third of its total
exports.
With higher crude oil price which is above the budget
benchmark of $62 per barrel, there have been fears that Nigeria may not be able
to maximize the benefits because of rising fuel subsidy burden.
As of 2021 when crude oil price averaged $62 per barrel, the
federal government spent about N1.2trn subsidising petrol.
With oil price hitting its highest level in over eight
years, there are fears in government circles that the country may surpass the
N2.55trn fuel subsidy budget for this year.
But Ahmed who spoke on the theme, “The political economy of
fiscal reforms in Africa,” noted that the current high price of crude oil had
further increased petrol subsidy burden on the federal government.
The Minister said that although, the government had a
setback in its plan to have subsidies on petrol removed by July this year, it
would work with the National Assembly to have it removed in phases.
She said: “We are cleaning up our subsidies. We had a
setback; we were to remove fuel subsidy by July this year but there was a lot
of push back from the polity.
“We have elections coming and also because of the hardship
that companies and citizens went through during the COVID-19 pandemic, we just
felt that the time was not right, so we pulled back on that.
“But we have been able to quietly implement subsidy removal
in the electricity sector and as it is, as we speak, we don’t have subsidies in
the electricity sector. We did that overtime by carefully adjusting the prices
at some levels while holding the lower levels down.
“Fuel subsidy is a huge problem for us. It has thrown up our
deficits too much higher than we planned. What is happening now with the global
oil prices is also going to worsen matters but the current review that we are
doing is to hold the subsidy at the level in which we planned.
She explained further that the Executive is currently doing
a budget amendment to accommodate incremental subsidy removal as a result of
the reversal of the decision.
“Hopefully, the parliament will agree with us and we are
able to continue with our plan for subsidy (removal) otherwise the way things
are going we will not be able to predict where we will be,” she said.
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