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Thursday, March 23, 2023

Petrol Subsidy to Gulp N6.72trn in 2023 as Debt Service Cost Hits N1.94trn

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The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed yesterday sounded the alarm bells as she revealed that a total of N6.72 trillion as full-year budget for petrol subsidy payment in 2023.

That will be if the next president decides to continue with the policy that had been identified as a drain on the economy.

Also, Ahmed revealed that the country’s debt service cost in the first quarter (Q1) 2022 was N1.94 trillion, N310 billion higher than the actual revenue received during the period.

The Minister of Finance disclosed these when she unveiled the Medium Expenditure and Fiscal Strategy Paper (MTEF-FSP) in Abuja.

The minister explained: “The aggregate expenditure for 2022 is estimated at N17.32 trillion, with a pro rata spending target of N5.77 trillion at the end of April.

“The actual spending as of April 30th was N4.72 trillion. Of this amount, N1.94 trillion was for debt service, and N1.26 trillion was for personnel costs, including pensions. As at April, N773.63 billion had been spent on capital expenditure. As of April 2022, FGN’s retained revenue was only N1.63 trillion, 49 per cent of the pro rata target of N3.32 trillion.”

She affirmed that the federal government’s share of oil revenue was N285.38 billion, representing 39 per cent performance while non-oil tax revenues totalled N632.56 billion — a performance of 84 per cent.

Ahmed also projected that should subsidy end in June 2023, based on the federal government’s earlier timeline, the sum of N3.36 trillion would be required to meet the financial obligations associated with subsidising the product.

The government explained that the Nigerian National Petroleum Company (NNPC) Limited, which on Tuesday officially transitioned into a fully commercial entity, would bear the cost of subsidy on petrol for the first six months of the year.

Ahmed noted the government was projecting fiscal outcomes in the medium term under two scenarios based on the underlying budget parameters/assumptions.

Ahmed explained that under the first scenario, which she described as, “business as usual” assumes that the subsidy on premium motor spirit (PMS) estimated at N6.72 trillion for the full year 2023 would remain and be fully provided for.
According to her, the second scenario was that, “petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case only N3.36 trillion will be provided for.”

The minister stated that both scenarios have implications for net accretion to the Federation Account and projected deficit levels.

On the import of NNPC’s transition to a limited liability company, she explained that the company would no longer be contributing to the monthly Federation Account, but would take care of subsidy for the first six months of 2023.

She said: “The new arrangement has indicated that NNPC will not be contributing monthly to the Federation Account as they used to in the past. But NNPC will be paying royalties, dividends and taxes. So, while the revenue might not be monthly, we will work on an arrangement on how this will be paid. And it is possible to work out an arrangement where the payments could be monthly or quarterly.

“NNPC has been paying for subsidy, but they are doing it on behalf of the federation, on the cost of the federation, even though they are the ones that have been paying.

“So, when they generate revenue, instead of remitting the revenue they are using part of the revenue or all of them to fund the subsidy. That has been the arrangement and that is what will continue to be in place until we exit the first time scenario one.

“So I was just saying that a new arrangement regime, NNPC will not be contributing to FAAC (Federation Account Allocation Committee) on a monthly basis, but NNPC will still be paying taxes, royalties and dividends.”

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