By Emmanuel Nduka
The World Bank has advised the Nigerian Government that it may not be able to pay salaries at both federal and state levels, if it does not remove subsidy by 2022.
This warning was transmitted by Lead Economist, Nigeria Country office of the World Bank, Marco Antonio Hernandez while unveiling the Nigeria Development Update (NDU), a bi-annual report of the multilateral institution, at an event jointly held in Abuja and virtually.
Hernandez in the report, urged Nigeria to remove subsidy on petroleum motor spirit (PMS) in February 2022, as prescribed by the Petroleum Industry Act (PIA), warning that further delay could worsen the precarious revenue situation confronting the country.
He also warned that the present fiscal condition of the sub-national governments would take a turn for the worse in 2022 with 35 of the 36 states unable to meet their financial obligations.
The World Bank stated that a situation where N250 billion goes into fuel subsidy monthly was unsustainable as the paucity of revenue confronts the country, especially the sub-national governments, adding that should the current revenue challenge continue till 2022, only Lagos State would be able to meet its financial obligations.
“Because most states rely heavily on inter-governmental transfers, diminished revenue inflows to the Federation Account are jeopardising fiscal sustainability at the state level.
“For example, in the oil-producing State of Bayelsa federal transfers account for 91 per cent of revenues, and declining transfers caused a 22-percent drop in Bayelsa’s revenues per capita during the year.
“Even in the state of Lagos, which relies the least on Federal transfers, transfers accounted for 29 per cent of revenues in 2020. Most State expenditures cover salaries and administrative expenses, and given their rigid (i.e., nondiscretionary) nature, State-level expenditures are difficult to cut.
“Consequently, lower revenues are likely to intensify pressure on states’ debt stocks and undermine their fiscal sustainability,” the report stated.
According to the report, in contrast to past periods of high oil prices, the Nigerian government has this time not been able to fully benefit from the oil boom because oil production has fallen below Nigeria’s estimated capacity and the Organisation of Petroleum Countries (OPEC) quota due in part to rising insecurity and the higher cost of the PMS subsidy.
“In 2022 the federal government plans to spend about 3,000 naira (US$7) per person for health, while the cost of the PMS subsidy for next year could reach 13,000 naira (US$32) per person. Not only is the PMS subsidy costly, but it mainly benefits richer households.
“Nigeria has the opportunity to establish a “compact” with citizens that eliminates the subsidy and uses the savings to provide targeted cash transfers to lower-income-households, invest in job-creating programs, and improve its fiscal position.”
In his remarks, Group Managing Director of the Nigerian National Petroleum Company Limited (NNPC Ltd) Mele Kyari, pointed out that while all over the world, subsidies are introduced to bring cost control and less pains to citizens, in Nigeria, fuel subsidy has become a major fiscal burden that must be eliminated.
“Today, we are evacuating about 60 million litres of gasoline from all the depots in the country. It is not national consumption and it is very understandable because of issues such as cross-border smuggling.
“As long as you have arbitrage, traders don’t see it as a crime, they just take advantage of that and exploit it. What we are dealing with is about N243 billion of fuel subsidy monthly. So, there is no magic around that.
“This is the reality that we are facing. Going forward in 2022, we simply cannot afford this, we just don’t have the resources. As a matter of fact, the NNPC may have to start invoicing the federation to be able to maintain subsidy.
“When you take out N243 billion from your total income every month, you are not able to fund your operations and so you can’t meet your other fiscal obligations. Clearly, there is a challenge in the ability to pay. So, there is a reform going on, particular in the energy sector and no one can stop,” he explained.