ABUJA- Nigeria's budget deficit is set to rise by 1.01 trillion naira to 7.40 trillion naira or 4% of GDP as the government eyes new domestic borrowing to fund extended petrol subsidies, President Muhammadu Buhari said in a letter to parliament.

The deficit was originally set at 3.42% of GDP. 

Buhari asked parliament, where he holds a majority, to amend the original spending plan and approve an extra 2.557 trillion naira ($6.15 billion) for petrol subsidy payments for 2022, according to the letter seen by Reuters.

Buhari signed a 17.13 trillion naira ($41.8 billion) budget into law in December, with 443 billion naira ($1.07 billion) provided for subsidy payments up to June, when they were due to be ended.

But last month, the government reversed its pledge to end the subsidies then, and extended them by 18-months to avert possible protests in the run-up to presidential elections next year. 

At the same time, the price of oil has soared. The West African country depends almost entirely on imports to meet its domestic gasoline needs. It is also facing shortages after taking delivery of some unusable substandard gasoline.

"It has become necessary to present this amendment proposal considering the impacts of the recent suspension of the (petrol) subsidy removal," Buhari said.

The IMF this month warned that Nigeria's 2021 deficit was expected to widen to 5.9% of GDP despite a recovery in international crude prices, partly due to the subsidy on petrol. That compares with 5.7% in 2020.

Buhari said the extra provisions will reinstate some expenses that were removed from the original budget and deleted capital projects that were duplicated. ($1 = 415.9100 naira)

(Reporting by Camillus Eboh; Writing by Chijioke Ohuocha; Editing by Andrew Cawthorne and Alison Williams) ((chijioke.ohuocha@thomsonreuters.com; +234 703 4180 621; Reuters Messaging: chijioke.ohuocha.thomsonreuters@reuters.net))