Scrapping of fuel subsidies to save Nigeria $5bon

Nigeria’s government, which relies on oil for about two-thirds of its revenue, sees a silver lining to the plunge in crude prices because it will no longer have to subsidise fuel, Vice President Yemi Osinbajo said.

“Lower oil prices also mean there is some advantage,” Osinbajo said in a panel discussion at the World Economic Forum in Davos, Switzerland, on yesterday. The decline “means that we are not paying any subsidies, which frees up something in the order of about $5 billion.”

Brent oil in London has dropped more than 60 percent to below $28 a barrel since November 2014, as shale production from the U.S. increased and the Organisation of Petroleum Exporting Countries refrained from cutting output in the face of a global oversupply in an effort to defend market share. Nigeria is Africa’s largest oil producer.

Nigeria will still face challenges in financing its budget deficit and aims to increase value-added tax and customs duty collection to help plug the gap, Bloomberg reports Osinbajo as saying.

“We think with adequate governance around budget management and around expenditure management, we can do quite a bit,” he said. “If we are able to do those things, we might be able to come away with under $30” a barrel oil.