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Fuel Subsidy A Major Setback To Human Development In Nigeria

The Nigerian government has been admonished to divert money spent on fuel subsidies into other sectors that will profit the country.

The World Bank observed in its latest report that the money splashed on fuel subsidies in Nigeria has surpassed the government’s spending on health, education and social protection for Nigerians.

Nigeria’s petrol subsidy as of 2021 cost around $4.5bn, or roughly two per cent of GDP.

The reported figure exceeded the federal government spending on health, education, and social protection.

The incumbent government however has been admonished to channel the fortune towards the poverty reduction scheme.

The report said “In 2021, Nigeria’s petrol subsidy cost around $4.5bn, or roughly two per cent of GDP, far exceeding federal government spending on health, education, and social protection.

“Therefore, diverting spending away from the petrol subsidy towards more pro-poor causes could help spread contains growth, which is essential for reducing poverty.”

According to the bank, Nigeria is not benefiting from high oil prices due to lower oil output and fuel subsidy costs.

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The report reads further that “The cost of the petrol subsidy will increase significantly as higher global petrol prices will entail larger subsidy payouts if pump prices continue to be frozen.

“The removal of the subsidy that the authorities had originally planned by mid-2022 was postponed until 2023 or later, which is expected to generate considerable fiscal costs.

“The 2022 amended budget (yet to be adopted at the time of this publication) allocates N4tn (almost two per cent of Gross Domestic Product) for the petrol subsidy, higher than the combined budget allocated for education, health, and social protection.”

As of May 2022, the oil production output stood at 1.5 million barrels per day, which is the lowest in 15 years.

It was further stated that the fuel subsidy is estimated to cost the government over $9bn in 2022, which is almost two per cent of the Gross Domestic Product.

The report added, “Due to the petrol subsidy and low oil production, Nigeria faces a potential fiscal time bomb.”

Nigerian National Petroleum Corporation usually deduct a significant portion of the Federation’s oil revenues to pay for the petrol subsidy.

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Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, has described the fuel subsidy as a big setback to the government as it hinders its ability to invest in human capital development.

The minister suggests that the government has to cut down on some investments and acquire more debts to fund fuel subsidies.

She said, “This PMS subsidy is costing us an additional N4tn than was originally planned. So, this is an unplanned deficit. We have gone to the National Assembly, and we have got approvals. The approval was simply to cut down on some of the investment costs. Some investments that we needed to make in the oil and gas sector, which we are delaying and deferring to a later time, and reducing the rollout of those investments.

“But we also had asked that we needed to borrow money, which is very serious. Already, our borrowing has increased significantly, and we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate.

“It (petrol subsidy) is impeding the government’s ability to be able to invest in human capital development. N4.5tn is money that we could have invested in health or education, but we are now investing it in consumption, which is very wasteful. How many Nigerians own cars that are benefiting from this subsidy?”

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