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Draft Document Shows Nigeria May Increase Fuel Subsidies Spending by 50% in 2024

Written by on June 7, 2024

Nigeria will likely spend 5.4 trillion naira ($3.7 billion) in 2024 – 50% more than in 2023 – to keep petrol prices fixed, while borrowing an extra 6.6 trillion naira to plug gaps in its budget, a draft document seen by Reuters showed on Thursday.

The “Accelerated Stabilisation and Advancement Plan” (ASAP), drafted by the finance ministry alongside private sector executives and some economists, aims to tackle challenges related to reforms aimed at stimulating growth.

Last May, President Bola Tinubu abolished a popular but costly petrol subsidy in a significant reform welcomed by investors, aiming to jump-start growth. However, the move led to a tripling of petrol prices, increased transportation costs, and exacerbated inflation, eliciting frustration from motorists.

Despite pressure from labour unions over the soaring cost of living due to his reforms, Tinubu has vowed not to reverse them.

Since July last year, petrol prices have been fixed despite two currency devaluations. The country has long relied on petroleum product imports as state-owned refineries produce minimal amounts.

“At current rates, expenditure on fuel subsidy is projected to reach 5.4 trillion naira by the end of 2024. This compares unfavorably with 3.6 trillion naira in 2023 and 2.0 trillion naira in 2022,” the ministry stated in the draft document.

Presidential aide Bayo Onanuga disclosed that Tinubu received the draft on Tuesday, emphasizing that it remains a proposal with suggestions for improving the Nigerian economy.

However, analysts note that if the president approves the policy, he could issue executive orders to begin implementing its recommendations, which include plans for the power, oil and gas, agriculture, and healthcare sectors with business support.

Nigeria’s economy has stagnated, with growth hovering around 3%, falling short of the 6% annual expansion Tinubu aimed for upon assuming office last year.

In its policy document, the ministry proposes that the government sell equity in its refineries by May 2026, increase excise duty on beverages, and introduce taxes on single-use plastics and sweetened beverages to generate funds.

It also outlines the government’s target of achieving oil production of around 2 million barrels per day by December, up from the current 1.4 million, to boost cash flow and address revenue shortfalls.

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