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Economy | Budget and Plans

Petrol Subsidy to Remain till June 2023

Sep 01, 2022   •   by CSL Research   •   Source: CSL   •   eye-icon 319 views

Amidst the lingering fiscal constraints, the Federal Government has disclosed plans to retain the petrol subsidy till June 2023. This was made known by the Minister of Finance, Budget and National Planning, Zainab Ahmed, while appearing before the House of Representatives Committee on Finance in Abuja, to defend the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP). She noted that the Federal Government is proposing an aggregate expenditure of N19.76trn for the 2023 financial year, a 14.09% increase on the 2022 revised budget and a projected deficit of N11.30trn. She noted however that the government’s budget deficit is expected to exceed N12.42trn if the petrol subsidy remains for the entire 2023 fiscal cycle. According to the Minister, the government is proposing to spend only N3.36trn as petrol subsidy in 2023 based on the 18-month extension announced early 2022. 

 

Meanwhile, gross oil and gas revenue was projected at N9.37trn for full year 2022 but as of April 2022, N1.23trn was realized out of the prorated sum of N3.12trn. This represents 39.4% performance. The net accretion to the federation account has been negatively impacted by the high cost of PMS subsidy resulting from both an increase in the landing cost of PMS and daily consumption. After accounting for deductions (including 13% derivation), net oil and gas revenue inflows to the federation account amounted to only N883.48bn, i.e., N629.49bn or 41.6% less than the prorated target. The MTEF & FSP further noted that as of April 2022, FGN’s total retained revenue was only N1.63trn, 49% of the prorated target of N3.32trn.


The FGN share of oil revenues was N285.38bn (39% of expected Revenue), while non-oil tax revenues totaled N632.56bn (84% of expected revenue). CIT and VAT collections were N298.83bn and N102.97bn, representing 99% and 98% of their respective targets. On the expenditure side, the aggregate expenditure for 2022 is estimated at N17.32trn, with a prorated spending target of N5.77trn at the end of April. The actual spending as of 31 April was N4.72trn. Of this amount, N1.94trn was for debt service, and N1.26trn for Personnel cost, including Pensions. As of April, N773.63bn had been spent on capital expenditure. 

 

Bearing in mind the recent resolve by the Federal Government to engage the indigenes through a pipeline surveillance contract to combat the heightened pipeline vandalism and crude oil theft and, we believe average daily production will gradually improve. The average daily crude oil production for Q1 2022 and Q2 2022 stood at 1.49mbpd and 1.43mbpd, respectively. However, we expect the country’s fiscal constraints to linger for a while. We restate our view that the country is at a crossroad, and we believe the subject of subsidy will be the starting point for the incoming administration. We understand that the elimination of subsidies is a politically sensitive discourse which many administrations do not want to address to avoid backlash from an already impoverished populace, however, the current fiscal challenges facing the country leaves the government little or no choice.

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