Subsidy: Petrol, Electricity Spent Inefficiently – World Bank

The World Bank report has revealed that Nigeria’s petroleum, electricity, and foreign exchange resources have been consumed by inefficient and regressive subsidiaries.

This was contained in a statement on the bank’s website announcing the launch of the new Nigeria Public Finance Review report.

The bank added that subsidies benefit only rich households and reduce government spending on poor Nigerians.

It added that the subsidies were far more than what was spent on education, health and social protection in 2021.

The statement read, “For years, a large share of Nigeria’s resources have financed inefficient and regressive subsidies for petrol, electricity, and foreign exchange. Not all these subsidies are accounted for in the budget, which makes them difficult to track and scrutinize.

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“However, available data suggest that these subsidies, which accounted for more than the amount spent on education, health, and social protection in 2021, benefit primarily wealthy households. They also distort incentives, discourage investment, and crowd-out spending on pro-poor programs, thereby hindering progress in Nigeria’s social development.”

It further noted that Nigeria had one of the lowest public expenditure and revenue levels in the world, undermining the government’s ability to improve service delivery.

The bank added that low tax rates and poor utilisation of tax bases, weaknesses in tax administration, and large deductions from oil revenues were limiting Nigeria’s ability to generate enough revenues.

The World Bank Group President, David Malpass, was quoted as saying, “Nigeria’s government urgently needs to strengthen fiscal management, create a unified, stable market-based exchange rate, phase out its costly, regressive fuel subsidy and rationalize preferential trade restrictions and tax exemptions.

These would lay the groundwork for the increases in public revenues and spending needed to improve development outcomes.

“Decisive moves would significantly improve the business enabling environment in Nigeria, attract foreign direct investment, and reduce inflation. The World Bank is ready to increase support to Nigeria as it designs and implements these critical reforms.”

On his part, the bank’s Nigeria Country Director, Shubham Chaudhuri, said, “Nigeria is at a critical historical juncture and has a choice to make. A child born in Nigeria today will be only 36 percent as productive when she grows up as she could be if she had access to effective public education and health services, and has a life expectancy of only 55 years.

These stark indicators illustrate the urgency for action by Nigeria’s policymakers to improve the macroeconomic and fiscal framework, so as to sustainably enhance the quality of spending and public services at Federal and State levels.”

At the launch in Abuja on Monday, there was a panel session, which featured the Director-General, Budget Office of the Federation, Ben Akabueze; the Chief Economic Adviser to the President, Dr Doyin Salami; and the Director-General of the Debt Management Office, Patience Oniha.

The DMO DG also said that Nigeria should not continue to depend on debts but needed to enhance revenue generation.

Each of the panelists stressed the need for the government to increase taxes and cover up compliance gaps.