Fitch Ratings on Tuesday said that the partial removal of fuel subsidy in Nigeria in January will likely result in extra resources of about N150 billion for distribution among the Nigerian state governments.
According to Fitch’s calculations, the lower deductions at source will result in an increase for states of about 5%-10% of their oil-related revenues.
Despite the higher proceeds, growing staff costs following the phase in of the N18, 000 monthly minimum wage, in tandem with rising energy costs will most likely offset this benefit. Therefore, in Fitch’s opinion, the extra resources are likely to be spent on growing operating costs, unlike the national governments’ share, which is ring-fenced for capital projects such as power and roads.
As higher revenues are not likely to translate into stronger budgetary performances, the agency said it expects the five Nigerian states it rates to continue to perform in line with its expectations.