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 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.