A new report by the Financial Times of London says Nigeria needs at least $4 billion to fund the fuel subsidy for the remainder of 2012.
The report states that the latest figures reflect the stark choices facing President Goodluck Jonathan’s administration after an unprecedented surge in the cost of the subsidy during the 2011 election year ate into savings and put government finances in one of Africa’s fastest growing economies at risk.
The cost of the subsidy rose more than 150 per cent from 2010 without there being a corresponding increase in either prices or demand by way of explanation. A parliamentary inquiry attributed the increase to collusion between officials and fuel marketers in the fraudulent diversion of funds and fuel.
Jonathan has pledged to staunch the leaks. However, because of arrears payments and continuing waste, the overall cost this year could be as much as 75 per cent of the record $14bn spent in 2011, even after the government halved the subsidy in January. Attempts to remove the subsidy altogether led to mass protests, forcing the government to compromise by restoring half of it.
Senior officials told the FT that Mr Jonathan has floated the idea of a supplementary budget worth $4bn to cover the 2012 subsidy.
Speaking to the FT, Ngozi Okonjo-Iweala, the minister of finance in charge of economic policy, said Nigeria would be unable to safeguard itself against external shocks if it covered this cost.
“We are vulnerable if there is a contagion from Greece. We can afford to keep paying the subsidy but it means we will be very thin on buffers,” she said, adding that losses from oil theft were also taking a huge toll on government finances. However, she vigorously defended the administration’s record in trying to straighten out the mess.
A government memo seen by the FT suggests that maintaining the subsidy would wipe out funds saved up as insurance against a drop in the price of oil, on which Nigeria typically depends for over 90 per cent of state revenues. The memo also calls into question the government’s ability to pay the wage bill and meet its obligations to the 36 states of the federation should oil prices fall.
The savings account, known as the Excess Crude Account, has about $4bn in it, according to Okonjo-Iweala.
This is equal to the amount being floated by the presidency to cover the 2012 subsidy. However, by law the funds in the account must be divided between the Federal Government, states and local governments, meaning that government would have to borrow to maintain the subsidy to the year’s end.
Of the N881bn ($5.54bn) budgeted for the fuel subsidy in 2012, Nigeria has so far spent N451bn ($2.84bn) paying off arrears for 2011, Okonjo-Iweala said.