Fuel Subsidy To Gulp N8.43trn If Reintroduced – IMF
The International Monetary Fund (IMF) has expressed worry over the danger of reintroduction of fuel subsidy may cause to Nigeria’s economy.
It said the silent reintroduction of fuel subsidy by the administration of President Bola Tinubu is expected to gulp almost half of its projected oil revenue this year.
According to the IMF, the implicit subsidy will cost the country an estimated N8.43tn ($5.9bn) of its projected N17.7 trillion of oil revenue.
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It made this recommendation in the latest IMF staff country report for Nigeria.
The Bank of America had projected that it could cost Africaโs largest crude producer between $7bn and $10bn this year if it imported between 18 and 25 billion litres of gasoline, Tatonga Rusike, BofA sub-Saharan Africa economist, wrote in a note.
This latest comment came almost a year after the President, in his inauguration speech, publicly stopped the payment of subsidy.
โSubsidy can no longer justify its ever-increasing costs in the wake of drying resources. We shall instead re-channel the funds into better investment in public infrastructure, education, health care, and jobs that will materially improve the lives of millions. Petrol subsidy is gone,โ Tinubu had declared.
The Presidentโs announcement sparked the increase in fuel price from N197 to between N480 and N570. The pump price was subsequently reviewed upward to N617/litre and now sells for between N620 and N700/litre.
The report read, โFuel subsidies were reformed in June 2023, however, adequate compensatory measures for the poor were not scaled up promptly and subsequently paused over corruption concerns.โ
โThe devaluation of the naira days later, which was aimed at creating a free-floating currency, led fuel prices to more than triple, fanning inflation and protests.
โTo help Nigerians cope, authorities started capping fuel pump prices below cost, reintroducing implicit subsidies by end-2023,โ the IMF said.
The currency has depreciated by almost 70 per cent against the dollar since last June.
Despite being Africaโs largest oil producer, Nigeria imports most of its gasoline needs because it lacks the refining capacity to meet domestic demand.
The IMF said it expected the fuel subsidy to be completely phased out within two years, as the government scales up its cash transfer programme targeted at the countryโs poorest.
