Fuel Subsidy Remains For Now
Nigeria’s outgoing finance minister says the fuel subsidy remains for now despite collecting $800 million grant from the World Bank as “president-elect” insists the subsidy will be removed
Nigeria may extend a costly fuel subsidy beyond June but the government will work with president-elect Bola Tinubu’s representatives to decide when exactly it will be scrapped, Finance Minister Zainab Ahmed said on Thursday.
Tinubu, who won the disputed February presidential election, is due to be sworn into office on May 29.
He has made ending the petrol subsidy, which cost $10 billion last year, one of his priorities.
In the 2023 budget, the subsidy was to end in June, but Ahmed said the Petroleum Industry Act could be amended to allow it to continue during the transition to a new government.
“It is not going to be removed now. It won’t be removed before the transition is completed,” Ahmed told reporters.
“We are going to work with the representatives of the incoming government to have a clear defined time plan that will take us towards the removal.”
According to the World Bank, subsidy payments could significantly impact public finance and pose debt sustainability concerns in Nigeria. Nigeria’s economy depends on petroleum, accounting for 90 percent of its exports and one-third of its GDP. However, the petroleum industry recently recorded zero revenue.
The Nigerian National Petroleum Company released a report in October 2022 that revealed that the agency recorded zero revenue from oil export due to the subsidy payment. Petrol subsidy alone for October 2022 gulped ₦199 billion. Nigeria incurs too much cost to pay fuel subsidies. There is a need to consider removing the fuel subsidy to fund other sectors of the economy.
One such strategic sector is building good roads to attract investors. Nigeria possesses abundant arable land areas that are uncultivated because they are not accessible. Research has shown that investment in good roads to enable transactions will bring about economic growth. A World Bank report also showed that better road infrastructure reduces transport costs, making it easier for businesses to reach internal and external markets. Adimula Oluwabukola a analyst noted.
The FG spends about ₦40.1 billion daily, subsidizing every litre of petrol consumed in Nigeria by at least ₦600. It means the government spends about ₦1.24 trillion on fuel subsidies monthly. The country is in massive debt and would need more money to subsidize fuel. As of March 31, 2022, Nigeria’s total public debt stock stood at ₦41.60 trillion ($100.07 billion).
Earlier in April, Nigeria secured an $800 million relief package from the World Bank to help cushion the impact of a plan to remove in June a long-held fuel subsidy.
Ahmed made the announcement to journalists at the state house after a weekly Cabinet meeting with officials.
She said the money was ready to be disbursed but did not provide details on how much beneficiaries would receive.
“We’re on course,” she told the local station TVC News. “We made that provision to enable us [an] exit fuel subsidy by June 2023. We’ve secured some funding from the World Bank. That is the first tranche of the palliatives that would enable us to give cash transfers to the most vulnerable in our society.”
Ahmed said authorities were also working with the incoming government to deploy non-cash interventions, including a mass transportation system to ease daily commutes for workers.
It is unclear if the new administration will discontinue the subsidy program.
And the past government’s decision to halt the costly venture has sparked mass protests and unrest across the country.
“How much will each household be getting? Let’s say roughly around 60,000 [naira],” said Emmanuel Afimia, the head of Enermics Consulting Limited, an oil and gas consulting firm. “But then once that is exhausted, what’s next? How do they intend to select the 10 million households? Who’s sure that the10 million households will receive this package? I just don’t believe it.”
Nigeria is one of Africa’s leading producers of crude oil, but Nigeria has been struggling to stem oil theft and revive local refineries.