FG to Use Eurobond Cash, Borrow More to Pay Subsidies
After failing to implement the Petroleum Industry Act, the Federal Government of Nigeria (FGN) will again visit the Eurobond market to raise dollars in addition to a local borrowing plan to fund subsidies.
Nigeria will tap 2 billion euros, which is an equivalent of $2.2 billion in March from Eurobond sale last year to fund subsidy in addition to local borrowing in 2022 as oil prices rise, Finance Minister Zainab Ahmed told Reuters.
The finance minister however said Nigeria will not tap the Eurobond market this year. “Rising oil prices have put us in a very precarious position … because we import refined products … and it means that our subsidy cost is really increasing,” she said on the sidelines of an Arab-African conference in Cairo.
Nigeria’s government in January reversed a pledge to end its subsidies then, and instead extended them by 18 months to avert any protests in the run-up to presidential elections next year.
In a commentary, Moody’s Investors Service hit back at the government saying Nigeria lack institutional capacity to implement necessary reform.
Oil price is on the rise, hitting 2013/2014 level following Russia’s invasion into Ukraine that has triggered fast, furious and economic-denting sanctions on the Federation.
This has raised petroleum landing cost, thus widening market price and actual cost per litre but a heavily impoverished percentage of Nigerians may not be able to absorb subsidies removal shocks on their finances.
Unfortunately, Nigeria has stayed down in production volume, falling behind the Organisation of Petroleum Exporting Countries (OPEC) and allies1.80 million barrels per day quota.
Shell, Eni just yesterday declared force majeure on the local assets, which could drag the nation’s earnings receipt downward despite moderate contribution from the non-oil segment.
Nigeria depends almost entirely on imports to meet its domestic gasoline needs, even though it is a crude oil exporter. It is also facing shortages after taking delivery of some unusable substandard gasoline.
President Muhammadu Buhari in a letter to parliament in February requesting extra funds to pay for petrol subsidies said the country’s budget deficit would rise to 4% of GDP as the government eyes new domestic borrowing.
The deficit was originally set at 3.42% of GDP. Petrol subsidies cost Nigeria up to $7 billion a year in revenue.
Ahmed said that the government was working with lawmakers to boost revenues and that the rise in oil prices means that borrowings will increase more than planned. #FG to Use Eurobond Cash, Borrow More to Pay Subsidies
READ: FG to Shift PIA Implementation Over Subsidy Removal Pressures
