Nigeria plans to cut subsidies on petroleum products by half next year after sharp falls in global crude prices, spurred the government to revise its 2015 budget downwards, according to data from the revised budget.
President Goodluck Jonathan submitted the revised budget figures to lawmakers this week, proposing to spend 458.68 billion naira ($2.59 bln) on petrol subsidy in 2015, down from 971.14 billion naira presented for 2014.
It also assumed further cuts to petrol subsidies in 2016 to 408.68 billion naira and 371.18 billion naira for 2017.
It is not clear yet what the proposed measure would mean at the pump. Petrol currently sells for N97 a litre.But with the deteriorating exchange rate, all indications are that prices will go up. Commissioners for finance in the 36 states fully endorse the withdrawal of the subsidy.
Nigeria’s finance minister has proposed lowering the assumed benchmark oil price for the country’s 2015 budget to $73 per barrel from the $78 proposed in September, after global crude prices collapsed.
Ngozi Okonjo-Iweala told Reuters on Thursday that declines in the price of oil, which has lost almost 30 percent since July, would impact Africa’s largest economy and top oil producer, requiring the government to cut non-essential spending and raise more revenues.
Nigeria tried to end subsidy in 2012 in efforts to cut government spending and encourage badly needed investment in local refining, doubling the price of a litre of petrol overnight to about 150 naira ($0.93) from about 65 naira.
The move angered citizens, who see cheap petrol prices as the only benefit they derive from living in an oil-rich country, and lead to 8 days of nationwide strikes. The government later reinstated part of the subsidy to end the strikes.
The budget proposals assumed an exchange rate of 162 naira to the U.S. dollar for 2015, weaker than 160 naira assumed for 2014. It expects the naira to weaken further to 163.50 in 2016, reaching 165 in 2017.
The naira has come under pressure in the past two months, losing almost 11 percent this year, from falling oil prices, which have weakened appetites for assets in Africa’s biggest economy and chief oil exporter.
The currency shed 0.76 percent on Friday to close at a record low of 177.45 naira against the greenback, despite the central bank intervening for a fifth day with dollar sales to prop it up, dealers said.
*Reported by Reuters