The World Bank says the Nigerian economy is at high risk with the increasing fuel subsidy.
It said subsidy payments could significantly impact public finance and pose debt sustainability concerns.
According to the bank, Nigeria is projected to have a 3.8 percent growth in 2022, stating that as an oil-dependent country, weak oil production hampers economic recovery.
It added that the increasing fuel subsidy poses a high risk to the country’s economic growth, despite the increase in oil prices.
The bank said, “Growth in Nigeria is forecast to increase to 3.8 percent in 2022 and stabilize at 4 percent in 2023-24. Real GDP growth was revised by 1.2 percentage points for both periods compared with the previous forecast. Nigeria’s economy is still dependent on the oil sector. Oil-related revenue contributes 40 to 60 percent of fiscal revenue, while oil and gas account for 80 to 90 percent of total exports.
“Weak oil production, below the OPEC quota, held back the recovery process. Although at a slower pace than the average seven percent during the boom period, growth prospects for the Nigerian economy are somewhat bright thanks to high oil prices coupled with reforms initiated by the passing of the Petroleum Industry Act and the completion of the Dangote refinery expected in 2023.
“Risk remains high on increasing fuel subsidies, which could weigh heavily on public finance and pose debt sustainability concerns. Nevertheless, public debt as a percentage of GDP is currently moderate.”
According to the World Bank, the high level of oil prices will affect countries that are shielding the impact on their consumers through fuel subsidies, such as Nigeria and Ethiopia.
It also said the high cost of fuel subsidies, due to the increase in oil prices, may deteriorate the country’s fiscal balance.
