25 percent of 2016 budget for Subsidy – World Bank

World Bank Tuesday reported that 25 percent of the federal government budget for 2015 will be spent on funding subsidy.

As a result of this huge spending on subsidy, the World Bank stated that Nigeria was unable to accumulate enough in the Excess Crude Account (ECA) because of the $35 billion cost of fuel subsidy incurred between 2010 and 2014.

The World Bank in its economic report on Nigeria said the cost of subsidy in 2015 is expected to be around “18 percent of all oil revenues to the country, equivalent to 25 percent of federal budget.”

The World Bank also warned that reports of wide-spread fraud will be costly to the reputation of the government and attempts to crack down on fraud can reduce supply while price distortions encourage overconsumption of fuel.

According to the report which was presented by John Litwack, the report lamented that “the short run outlook remains difficult due to expected low oil prices. Even if oil prices recover, government oil revenues should continue to decline in the medium term relative to the size of the Nigerian economy.”

To address this economic crisis, the World Bank noted that “fiscal adjustment will be of critical importance. Investors stand willing to bring considerable investment to Nigeria if they receive credible signals from the new Government of commitments to policy directions and regulations consistent with strong private sector growth.”

The report said; “the benefits of the fuel subsidy in Nigeria appear quite limited, while the costs are high. For given fixed domestic fuel prices, the burden of the fuel subsidy, i.e. its share of government oil revenues, will likely increase over time regardless of whether oil prices remain low or recover.”

In 2014-2015, the report stated that “the FAAC distributions of oil revenues to budgets have been crowded out by the costs of the fuel subsidy and cash calls to NNPC.”

The report disclosed that “the value of the subsidy received by the wealthiest 10 percent is 30 times the value received by the poorest 10 percent. The vast majority of benefits to poorer Nigerians would have been from the kerosene subsidy if it was enforced. Without the kerosene subsidy, estimated per capita benefits to the poorest 10 percent of Nigerians is only 18 naira a month, most of which comes from transportation.”

It was reported that the benefits of the petrol subsidy are even less now, given that the world price is lower and enforcement at the pump has weakened. “The share of the fuel subsidy in oil revenues to the Nigerian government is growing,” the World Bank warned.

In his presentation, Masami Kojima lamented that Gas prices in Nigeria are not adjusted regularly, while announced gas prices are not always implemented. He noted that the country’s Department of Gas was not operational until 2012, and under-resourced.

Masami Kojima added that “allocation of gas supply obligation are not announced at the beginning of each year but gas aggregator became operational since 2010, but the aggregation has not begun, and hence there is no aggregate price for gas in Nigeria.”