Nigeria has revised upwards its outlook for the budget deficit this year due to the cost of partially reinstating petrol import subsidies and will pay for the move by raiding its crude oil savings.
The finance ministry said on Thursday the 2012 deficit would reach 2.97 percent of gross domestic product, up from 2.77 percent in its previous fiscal plans outlined in December.
The Federal government removed fuel subsidies on January 1 but was forced to partially reinstate them after tens of thousands took to the streets in more than a week of protests over the increased cost of petrol.
The new 2012 budget includes costs of N888 billion for fuel subsidies, up from N155 billion in the previous plans. The federal government’s N309 billion share of the subsidy will be funded out of the Excess Crude Account (ECA). The rest will be funded by state and local government.
The government saves money it earns from crude exports over a benchmark price into the ECA to help cushion its economy from potential oil price shocks.
The ECA contained more than $20 billion in 2007 but despite a period of record high oil prices since, the account has been drained and only contained $3 billion at the end of last year.
The Finance Ministry said it would fund the rest of the increased deficit from privatisation proceeds, oil signature bonuses and by cutting costs and squeezing out more revenues from government offices. Domestic borrowing remains at N794 billion, as in the last proposal.
Total expenditure in the new budget plan will be N4.649 trillion, down from N4.749 trillion in December.
“Ordinary this (subsidy reinstatement) would have resulted in a very large deficit … (but) the government has taken very strenuous steps both on revenue and expenditure to reduce the impact of partial deregulation,” the finance ministry proposal said.
