6 July 2012

Nigeria: Corruption in Subsidy Funding Fuels Fears Among Experts, Marketers

The level of corruption in the management of funds meant for fuel subsidy could leave the country broke earlier than expected, analysts have warned.

They were worried that with the level of corruption, the fuel subsidy was poised to swallow the entire budget for 2012.

They were also afraid that, at the rate the country was going, there would be nothing left to show for the benevolent crude oil prices in the international market if the tide made a U-turn in the nearest future.

The suggested that another way fuel crisis could be avoided in the country was for the federal government to borrow money to sustain the lopsided fuel subsidy payment, petroleum products markerters and other analysts have stated.

According to them, sending a supplementary budget to the National Assembly for approval will enable the country to avoid what could become another economic embarrassment to a country that is the top oil producer in the Africa continent.

Oil prices which have peaked at over $125 per barrel have crashed to less than $90 per barrel in recent times because of the financial crisis in Europe. There is no immediate hope that the crisis would end soon.

Chief executive officer of Financial Derivatives Company Limited, Bismarck Rewane was short of words on how to fund the subsidy.

"Look, the entire budget is N4.3 trillion and, in less than six months, N2.19 trillion is already spent. Now, if the amount is doubled, that means about N4.2 trillion will be spent, leaving barely N100 billion.

"This is a warning signal, an alert that all is not well with the economy. It appears these guys (the cabal) have come back with vengeance on the economy," said Rewane.

Razia Khan, analyst with Standard Chartered Bank, London, said a supplementary budget would be the option, which seemed increasingly plausible or the 'fudge' solution, which is to simply run up new arrears. "This would only be a short term solution at best," she said.

She added that, "at some point, there will have to be renewed discussions over the sustainability of the subsidy, especially if oil earnings fall because if output disappointment".

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