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Nigeria to End Costly Fuel Subsidy

FILE - People queue at a petrol station in Lagos, Nigeria, Friday, Feb. 18, 2022.
FILE - People queue at a petrol station in Lagos, Nigeria, Friday, Feb. 18, 2022.

Nigeria's Muhammadu Buhari confirmed on Friday plans to remove a costly petrol subsidy as he presented his final budget as president that foresees deep revenue shortfalls.

Despite being a major oil exporter, Nigeria imports the bulk of its petrol, and a subsidy keeps the prices at the pump low for consumers.

While the subsidy is popular among Nigerians, it is costly with a price tag estimated at $9 billion this year.

"Petrol subsidy has been a recurring and controversial public policy issue in our country since the early eighties," Buhari told a joint session of the National Assembly in Abuja."However, its current fiscal impact has clearly shown that the policy is unsustainable."

If the government ends the subsidy, it would add to the burden of Nigeria's consumers who are already battling with inflation due to Russia's war in Ukraine and the end of the COVID-19 pandemic.

Buhari presented a record budget of 20.51 trillion naira ($47.4 billion) for 2023, with spending up 18.4% from this year in nominal terms.

But with inflation currently running at over 20%, and forecast at 17.16% for next year in the budget, there is unlikely to be much, if any change in real terms.

Buhari said Nigeria's economy is projected to grow 3.7% in 2023, up marginally from the 3.55% rate expected this year.

Buhari warned that revenue shortfalls will continue to pose a threat to the country’s fiscal viability.

Nigeria's tax revenue has yet to recover from the COVID-19 pandemic, and has also been battered by the economic effects of the Ukraine war.

The budget deficit is projected to be 10.78 trillion naira, said Buhari, which is just over half of planned spending.

Oil revenue is projected at 1.92 trillion naira, with non-oil taxes estimated to contribute 2.43 trillion naira, he said.

Buhari said the budget expects oil-rich Nigeria will produce 1.69 million barrels per day (bpd) of crude, assumes an oil price of $70 per barrel and an exchange rate of 435.57 naira to the dollar.

Nigeria, a member of OPEC, has been unable to meet its quota of 1.8 million bpd because of a lack of production capacity and large-scale oil theft, hurting revenue and draining foreign reserves.

The budget must be approved by lawmakers.

Nigerians go to the polls in February to elect a successor for Buhari, 79, who will step down after leading Africa's most populous nation for eight years.

With Nigeria’s economy flagging, its vital oil production at all-time lows, and insecurity a major problem, the next president faces a host of urgent issues.