In its December 2023 Nigeria Development Update, the World Bank has projected substantial savings of over N11 trillion for Nigeria by 2025 following the removal of fuel subsidies. The report, a bi-annual evaluation of economic and social changes in Nigeria, emphasizes that the subsidy removal, initiated on June 1, 2023, is anticipated to save the government around N2 trillion in 2023 alone, constituting approximately 0.9% of the country’s total economic output.
However, a challenge has emerged as the Office of the Accountant General of the Federation (OAGF) reports that the elimination of the fuel subsidy did not result in the expected increase in net oil revenues. Initially costing approximately N380 billion monthly, the subsidy’s removal was expected to significantly boost the country’s oil revenues. Nevertheless, most revenue gains in the second half of 2023 were attributed to exchange rate improvements rather than the anticipated subsidy removal benefits.
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The World Bank report underscores the importance of maintaining macroeconomic stability by the government, emphasizing key recommendations. These include a reaffirmation of the commitment to non-subsidization of gasoline, ensuring retail prices align with this commitment, regularly publishing pump price information, and providing detailed financial statements of the Nigerian National Petroleum Company Limited (NNPCL) to safeguard fiscal savings from subsidy reform.
Despite a 4.6% year-on-year improvement in oil production during the first nine months of 2023, Nigeria still lags behind its pre-pandemic average monthly production of 1.7 million barrels per day (mbpd). The report notes that this growth falls short of Nigeria’s OPEC quota of 1.7 mbpd and the 2023 budget’s estimated production level of 1.69 mbpd.
Looking ahead to 2024, Nigeria’s OPEC quota is set at 1.5 mbpd, with the budget benchmark at 1.7 mbpd. However, challenges persist, as November 2023 saw the country’s oil production dip to 1.4 mbpd, including condensates production, after recording over 1.5 mbpd in September and October 2023. The World Bank report anticipates a potential export shrinkage in 2024 due to expected oil prices around 20% lower than those in 2022.
In conclusion, the World Bank stresses the need for the Nigerian government to remain committed to subsidy removal, regularly communicate pump prices, and enhance transparency in financial reporting to ensure the realization of substantial fuel subsidy savings.
Source:
Nairametrics
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