$35b in 5 years : How fuel subsidy is killing Nigeria - World Bank

According to the World Bank, Nigeria spent about $35b (N6.9 trillion) in the last five years subsidizing petroleum products.
World Bank's ‘Nigeria Economic Report No. 3’, released in Abuja on Tuesday said that fuel subsidy crippled the country’s capacity to save for the rainy day occasioned by falling crude oil prices in the international market.

The report presented by World Bank's Lead Economist in Nigeria, Mr. John Litwack highlighted the high fiscal cost of fuel subsidy on the country. 

“The fiscal cost of the fuel subsidy is very high, reaching an estimated $35bn during 2010–2014. Moreover, annual costs are increasing over time due to rising fuel demand and the depreciation of the naira.

“In recent years, numerous audits and reports have identified widespread corruption and fraud in the administration of the fuel subsidy, and official petrol imports have substantially exceeded actual consumption. Attempts by the government to crack down on fraud and delay payment of the subsidy have commonly met with severe fuel shortages in the country that also impose high economic and welfare costs on Nigerians.

“The $35bn cost of the fuel subsidy during 2010–2014 was a primary reason why Nigeria was unable to accumulate a fiscal reserve in the Excess Crude Account that could have protected the country from the recent oil price shock. 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 report also said that  the entire executed federal capital budget as well as the combined spending on education and public health care is significantly less than the budgetary spending on fuel subsidy which takes a quarter of the total budget.

“The weak enforcement of administrative prices further reduces the benefits of fuel subsidies to Nigerian households. There are other important costs as well. Uncertainty about the fuel subsidy has strongly discouraged investment in domestic refining.

“Moreover, artificially low fuel prices distort incentives and encourage excessive consumption of energy. Allegations of corruption and fraud surrounding the implementation of the fuel subsidy are costly to the reputation of government.

“Finally, subsidy-related fuel shortages have repeatedly disrupted economic activity and imposed serious welfare costs on Nigerian households. In addition, every time the naira depreciates, the cost of subsidising a nominal fixed price increases,” it said.