The World Bank says the petrol subsidy removal has not fully translated into expected revenue gains for Nigeria, as only half of the proceeds are being remitted by the Nigerian National Petroleum Company (NNPC) Limited.
Alex Sienaert, the World Bank’s lead economist for Nigeria, spoke on Monday during the launch of the May 2025 Nigeria Development Update (NDU) in Abuja.
On May 29, President Bola Tinubu said the petrol subsidy regime was over.
Three months later, TheCable reported that Tinubu was considering a “temporary subsidy” on petrol as crude oil prices and foreign exchange (FX) rates soared.
Although the federal government had consistently denied the return of petrol subsidy, the NNPC, on August 19, said the federal government owes it N7.8 trillion for under-recovery.
Speaking at the event, Sienaert said NNPC started using the official FX rate for transactions in October 2024, marking the end of implicit subsidies.
“Other things to keep an eye on at present include the good news, of course, that the PMS subsidy was effectively ended last October, but revenue gains from this are yet to fully flow to the federation,” he said.
“NNPC began applying the official exchange rates for all its kind of transactions and fiscal revenue calculations back in October, so no more implicit subsidy.
“But as of January, NNPC was still only transferring about half of the resulting revenue gains from the subsidy elimination to the federation, and that’s because of arrears and counter-arrears and what have you.
“It’s just going to be important in the coming months to keep tracking this, and ultimately that all revenue gains from the difficult job of eliminating the subsidy do flow to the federation, so that that can support a continued healthy fiscal picture, and in turn stand in on the government priorities for Nigeria.”
‘2025 BUDGET AMBITIOUS… REVENUE TARGETS HARD TO MEET’
The World Bank said Nigeria’s 2025 budget is ambitious and may face difficulty achieving its revenue targets.
Sienaert said key assumptions such as daily oil production of 2.1 million barrels and an average crude price of $75 may be too optimistic.
“Even with the very positive revenue sort of tailwind that I described, it looks like it’s going to be pretty hard to meet some of the ambitious revenue targets that are in there,” he said.
The World Bank official warned that failure to meet revenue expectations may lead to increased borrowing or renewed deficit financing through ways and means, which the government had pledged to avoid.
“If the financing requirements exceed what’s budgeted, then that’s either going to create arrears, pressures, which is not healthy for the public finances or the economy, or it could renew risks of recourse to things like deficit monetisation under large-scale ways and means,” he said.
“The authorities have been very clear that they will by no means be going back to large-scale use of ways and means. But were that to happen, it would be extremely destructive to the whole rebuilding of confidence in fiscal sustainability and in the naira, ultimately.”
‘POLICY CHANGES HAS INCREASED COST OF LIVING’
Sienaert said reforms such as subsidy removal have increased the cost of living, particularly affecting vulnerable households, while stressing the need for social support to ease the effects.
He stressed the need to provide as much support as possible to the poorest and the most economically at-risk households.
“Although this government does have an ambitious targeted cash transfer programme, N25,000 a month for three months for 15 million recipients, the implementation has just been quite slow; so only about a third of those recipients have received transfers so far,” he said.
Sienaert said the programme is now being scaled up and implemented more rapidly, which he described as essential to ensuring broader relief.
The World Bank official also noted improvements in fiscal and monetary policies, including unified exchange rates, tighter monetary controls, increased transparency, and the government’s resolve not to monetise its deficit.
In the May 2025 NDU, the global bank also said Nigeria must accelerate economic growth and create more jobs to become a $1 trillion economy by 2030.
‘ELECTRICITY SUBSIDY IS WASTEFUL’
The lead economist called for the removal of electricity subsidy in the power sector, saying it wasteful and regressive.
“There is still one kind of wasteful, regressive subsidy, which is the electricity subsidy, so work to address that,” he said.
He added that progress is being made in boosting non-oil revenues through tax reforms and new legislation, while oil revenue transparency has also improved.
Sienaert acknowledged recent progress in budget credibility, particularly through better assumptions and detailed disclosures, but said further work is needed to cut the cost of governance and improve the budget process.
The Nigerian Electricity Regulatory Commission (NERC) had said the federal government incurred an electricity subsidy obligation of N471.69 billion in the fourth quarter (Q4) of 2024.