The World Bank has said the Nigerian government may still be paying a subsidy for petrol as the current pump price of the essential commodity is not cost-reflective.
The bank’s Lead Economist for Nigeria, Alex Sienaert, said this during his presentation of the Nigeria Development Update (NDU), December 2023 edition, on Wednesday in Abuja.
According to him, the realistic price to pay per litre of petrol, in view of prevailing exchange rate is about N750 per litre, not the N650 per litre the product is currently being sold for.
“It does seem like petrol prices are not fully adjusting to market conditions so that hints at the partial return of the subsidy if we estimate what is the cost reflective of the retail PMS price of the would-be and assume that importation is done at the official FX rate.
“Of course, the liberalisation is happening with the parallel rates, which is the main supplier, the price would be even higher. These are just estimates to give you a sense of what cost-reflective pricing most likely looks like.
“We think the price of petrol should be around N750 per litre more than the N650 per litre currently paid by Nigerians.”
The World Bank also called on the Nigerian National Petroleum Company (NNPC) Limited, to be more open and honest.
It said this openness should make sure that the oil revenues and earnings that are going to the federation account are accurate and also suggested that the government post information explaining petrol pump pricing regularly.
It emphasized the need for government to ensure transparency at its own oil company – the NNPC, “with regards to profits and oil revenues to be remitted to the Federation Account.”
Meanwhile, the World Bank has advised the federal government to increase the Value Added Tax (VAT) rate as a measure to boost non-oil revenue into the FG’s coffers.
It stated this in its Bi-annual Nigeria Development Update titled “Turning the Corner: From reform and renewed hopes, to results” published on Wednesday.
In the report, the bank recommended hiking the current VAT rate of 7.5 percent as a measure towards creating more fiscal space and increasing non-oil revenue.
However, the bank noted that such an increase should allow for input tax credits while exemptions on petrol should be removed as some of the measures recommended to raise non-oil revenues
Other recommendations from the bank geared towards increasing non-oil revenue include; the use of data towards tax auditing and the introduction of simple turnover tax for SMEs at the state level rather than the multiple levies and fees.
The report also noted that the reforms of the President Bola Tinubu administration, if sustained, could help reduce inflation to 19.6 per cent in 2025.
The World Bank highlighted other benefits of the reforms in the long run to include an increase in GDP growth to 3.7 per cent in 2025, a reduction in fiscal deficit ratio to GDP from its current 5.1 per cent to 3.7 per cent in 2025, and a reduction in the public debt service as a percentage of revenue from 102 per cent in 2022 to 51 per cent by 2025.
