Nigeria: Increase in petrol price inevitable

May 16, 2019

Managing Director and Chief Executive Officer, Financial Derivatives Company Limited, Mr Bismarck Rewane has said Nigerians should be ready for a hike in pump price of fuel products.

He argued that this was inevitable as fuel subsidies were already suffocating the government revenue.

Rewane in a presentation at the Lagos Business School which was made available to our correspondent on Tuesday, said the World Bank put Nigeria’s total subsidy bill in 2018 at N731bn, adding that “A gradual reduction in subsidy payments [is] anticipated. Only N305bn set aside for under-recovery in 2019 budget; expect an increase in the pump price of fuel.

“40 per cent shortfall in provision for subsidies (under-recoveries) points to possible price increases.”

He, however, said a petrol price hike would result in high inflationary pressure, noting that Nigeria has one of the lowest tax to Gross Domestic Product ratios at 5.3 per cent.

The financial expert pronounced the 2019 budget as counter-cyclical, saying the economy was in dire need of a boost.

He analyzed that with expenditures much higher than sustainable revenues, the fiscal the deficit had amplified by 2.15 per cent to N1.9tn, adding that the supplementary budget could only be accommodated.

“Oil revenues are projected to decline due to the impact of OPEC quota on Nigeria’s oil output level,” he added.

Speaking on the new minimum wage funding and its impact on states, Rewane explained that civil service in states accounted for about 1.9 million workers.

He said, “States get 85 per cent of Value Added Tax, as well as other statutory allocations, in addition to internally generated revenue. Personnel expenses of most states exceed IGR. So, there is either an expense problem or a revenue problem. For social reasons, headcount rationalisation may be farfetched. But labour optimisation will help boost productivity.

“IGR remains key to the funding of the new minimum wage. Funding through the statutory allocation (Federal Accounts Allocation Committee) is unsustainable.”

He noted that an increase in VAT may lead to momentary relief, accompanied by the enhanced tax administration.

Rewane also advised that other measures that will help the situation include; partially sell equity across state-owned enterprises; liberalisation – private sector-led projects; commercialisation – rental income from idle assets; and concessions – fees from long-term leasing of assets.

He explained that the change in monetary policy rate, also known as the benchmark interest rate had no impact on investment, output and savings in April.

The Monetary Policy Commission of the Central Bank of Nigeria had in March cut the MPR to 13.5 per cent from a record high of 14 per cent

“There is a possibility of another 25 basis point cut. Credit to the private sector shrank again in April,” he added.

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