Crude Oil Prices will Determine Size of Nigeria’s Deficit this Year, Intelligence Report Says

Akanimo Sampson

Akanimo Sampson

A political risk consultancy, Menas Associates, says the size of this year’s deficit in Nigeria under the watch of President Muhammadu Buhari, will actually be determined by crude oil prices.

In its Nigeria Focus, a monthly intelligence report on Nigeria it says some estimates now put the cost of subsidy payments alone as high as $29 billion.

‘’The commitment to the fuel subsidy is like a blank cheque, because the government must pay whatever it takes to ensure domestic supply.

‘’That makes for a largely unpredictable financial year. The International Monetary Fund (IMF) already projects that more than 90% of revenue earned during the year will go towards servicing the debt’’, the intelligence report says.

Continuing, the report says Nigeria is grappling with a budget that has been undone by an unexpected factor: the war in Ukraine, adding, ‘’while the 2022 Budget was being prepared last year, Finance, Budget, and National Planning Minister Zainab Ahmed announced that the country was finally going to do away with the subsidy on gasoline supplies that ensured lower and uniform prices at the pumps.

‘’The move was to save Nigeria about a fifth of its budget, which could then be directed to more productive projects.

‘’That was until President Buhari and All Progressives Congress (APC) realised that the move would come just a year before the 2023 general election.

‘’Higher fuel prices could provoke strikes and protests, and were unlikely to win votes from Nigerians who consider cheaper fuel one of the few benefits that they get from the government.

‘’So the administration decided it could continue to meet the subsidy burden for another year, with estimates that it would cost some ₦3,000 billion ($7.2 billion) out of a national budget of ₦17,000 billion ($41 billion) for 2022.

‘’According to Ahmed, while the government has not been able to get rid of the gasoline subsidy, it has quietly dropped the one it paid to support lower electricity tariffs.

‘’The picture still looked manageable until Russia invaded Ukraine. As international oil prices shot up, Africa’s top oil exporter was met increasing costs. With its four state-owned refineries now moribund, Nigeria has relied on fuel imports to meet almost all domestic needs.

‘’Ahmed told an interviewer on March 16 at the Arab–Africa Conference in Cairo, Egypt, that rising oil prices have put us in a very precarious position. She said that Nigeria is considering a  €2 billion Eurobond by April to help fund the subsidy payments, in addition to raising funds from the domestic market for deficit spending.’’

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