How to spend N5trn: World Bank formula

The World Bank has reviewed its projections on Nigeria’s development and replaced them with a mixed grill that sounds even gloomier.

The bank raised Nigeria’s gross domestic product (GDP) growth projection for 2022 from 2.6 to 3.4 per cent. It however lamented that surging inflation and Ukraine war-induced famine will push 7 million more Nigerians into abject poverty during the year. Given the optimistic projection on GDP growth rate for 2022, it is obvious that the impending poverty scourge would be engendered by Nigeria’s skewed income distribution system. Nigeria’s income distribution system corruptly puts 80 per cent of the nation’s enormous wealth at the command of an infinitesimal but powerful minority, leaving millions in abject poverty.

In its recent Nigeria Development Update (NDU), the bank warned that its earlier projection on petrol subsidy was rather optimistic and that the situation would actually be more grievous than earlier estimate.

The bank submitted that Nigeria might spend N5 trillion on petrol subsidy this year. It argued that healthcare delivery, education and investment in infrastructure that could generate jobs would suffer catastrophic neglect because of the colossal sum sunk into petrol subsidy. At an estimated N5 trillion, petrol subsidy allocation is more than 500 per cent of health care and education budgets.

In other words, Nigeria is sacrificing the health of its citizens, and what could be invested on job creation on the altar of petrol subsidy. The World Bank has always had scathing remarks for Nigeria’s petrol subsidy. It believes that Nigeria wastes huge sums providing cheap petrol for the fleets of gas-guzzling cars used by the rich, while the poor have no access to basic healthcare facilities because government can no longer fund them.

The bank’s new projection on petrol subsidy for 2022 is grounded on the upward trend in crude oil price in the international market. The bank made its recent NDU, when crude oil price hovered around $123 per barrel. Experts believe that oil price would remain in triple digits for the rest of 2022.

It could only drop a bit if the west strikes a deal that could ease sanctions and allow more Iranian oil into the global market. Iran is under massive western sanctions because of its nuclear programme which is suspected to be close to building a nuclear warhead.

If the west relaxes its sanctions on Iran, it could add about 2 million barrels per day to the tottering global supply and force down prices.

Even at that, Nigeria’s petrol subsidy bill would still be unacceptably high given its dwindling revenue profile and persistently depreciating naira.

Annual revenue estimate for 2022 is a paltry N10 trillion for a budget estimate of N17 trillion. If N5 trillion is spent on petrol subsidy, government would have spent 50 per cent of its dwindling revenue subsidizing consumption, while the cost of production is allowed to run riot and fuel inflation. When the cost of petrol subsidy is added to about N4 trillion earmarked for debt service for the year, what is left from government dwindling revenue cannot run the country for three months.

Unlike the World Bank, the federal government sees petrol subsidy as a necessary evil. Even as the World Bank believes that the rich gain more from petrol subsidy than the poor, government believes that subsidy remains the most equitable way to protect all strata of society from the inflationary effect of expensive imported fuel.

The perception is that petrol subsidy withdrawal could push inflation well above 30 per cent as transport operators triple the fares for evacuating food items from Nigeria’s inaccessible rural communities where 70 per cent of the country’s local food items are produced.

Last year, government announced plan for what it considered an option to petrol subsidy. It planned to pay a monthly stipend of N5, 000 each to 40 million Nigerians in extreme poverty in exchange for petrol subsidy which benefits everyone.

It soon dawned on government that the stipend for a negligible segment of those in abject poverty was almost as expensive as the cost of subsidizing petrol and holding down inflation for the benefit of the entire society.

Besides, the stipend was obviously not evenly spread among the poor. Those below the poverty line that would have missed the stipend were more than those earmarked for it. It would have ended up pushing millions more below poverty line. Government dropped the plan before it left the drawing board. The World Bank itself has never suggested a suitable way of reducing the inflationary effect of subsidy removal on all spectrum of society.

It has always restricted itself to conventional economic solutions which have failed empirical test in Nigeria because of endemic corruption.

The World Bank had all along blamed petrol subsidy for Nigeria’s inability to attract sufficient investment to the downstream sector of the oil industry as it argued that investors were afraid of building refineries where government will stand around and fix product prices that are out of tune with production cost.

Aliko Dangote has taken the wind off the sail of that argument with the building of one of the world’s largest refineries with a $9 billion loan from reputable international banks that did not see any risk in the venture.

However, the World Bank is right on target with the claim that petrol subsidy is at the root of Nigeria’s deplorable healthcare delivery system which churns out one of the world’s highest infant mortality rates.

It is equally responsible for the 13.5 million children of school age who cannot find seats in cheap public schools as government has no money to build, equip and provide teachers for schools.

Petrol subsidy is a self-inflicted injury and the federal government is even worsening the situation rather than resolving it. The four refineries have not processed even a barrel of crude oil in the last two years but government spends close to N300 billion annually on them.

The truth however is that corruption is to blame for everything from petrol subsidy to the low revenue plaguing government.

Even at a time when oil price stands menacingly in triple digits, Nigeria gains very little from the upsurge because 500, 000 barrels of crude oil is stolen daily.

Perhaps what is more worrisome in the World Bank report is the well known fact that Nigeria was actually subsidizing huge quantity of petrol that never reached its shores.

The Nigerian National Petroleum Company Limited has worsened the situation with fraudulent petrol consumption figures. Even with oil price in triple digits, Nigeria will be spending less than N3 trillion on petrol subsidy if it was paying for what is consumed.