World Bank has cautioned that Nigeria would be unable to accumulate a fiscal reserve in the Excess Crude Account because of the $35 billion cost of fuel subsidy incurred between 2010 and 2014.
The bank also said that the $35 billion spent on subsidy could have protected the country from the recent oil price shock but the government opted to waste it on subsidy payment.
“Fuel subsidy obligations are expected to reach 18 per cent of all government oil revenues in 2015 and if the current regulated prices are maintained, this is projected to increase to more than 30 per cent by 2018,” the bank said in Nigeria Economic Report (NER) launched in Abuja, Tuesday by the bank.
According to the report, which was presented to the public by the lead economist of the World Bank, Mr. John Litwack, the recent sharp decline in oil prices in the context of the high dependency of Nigeria’s public finance on oil revenues and slower economic growth, Nigeria is hard pressed for a major fiscal adjustment to lower oil revenues – even if oil prices rebound, the general rapid trend toward a decline in the share of oil revenues in Gross Domestic Product (GDP) should continue.
“Adjusting to new fiscal realities will be a critical chal- lenge for Nigeria in the short and medium term. On the upside, however, and as the report highlights, important gains can be made by increasing efficiency in the public sector and improving regulatory effectiveness,” the report said.
The report also examined Nigeria’s natural gas sector, which it said, has great potentials to boost the country’s power supply with right policy framework and credible political commitment.
“The authorities will also need to re-examine critical issues, including regulatory institutions and uncertainty, pricing policy and payment arrears. Realising the vast potential of Nigeria’s natural gas sector, Nigeria will demand a bold new strategy that includes revisiting the pricing policy and regulations from 2008, taking steps to ensure that gas prices paid ensure reasonable returns to investment and establishing an independent regulator,” the report noted.
Litwack stated in his presentation that despite Nigeria’s economic crisis, it has space for borrowing but warned that the money should be channelled into productive ventures and not wasted as has been the case with previous regimes.
