The International Monetary Fund has stated that the President Bola Tinubu administration’s quiet return of fuel subsidies will consume nearly half of its planned oil earnings this year.
According to the IMF, the implicit subsidy will cost Africa’s top crude producer an estimated N8.43 trillion ($5.9 billion) of its expected N17.7 trillion in oil earnings.
It made this recommendation in the latest IMF staff country report for Nigeria.
The Bank of America had projected that it could cost Nigeria 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.
“Subsidy 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,” Tinubu had declared.
The President’s 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, “Fuel subsidies were reformed in June 2023, however, adequate compensatory measures for the poor were not scaled up promptly and subsequently paused over corruption concerns.”
“The 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.
“To help Nigerians cope, authorities started capping fuel pump prices below cost, reintroducing implicit subsidies by end-2023,” the IMF said.
The currency has depreciated by almost 70 per cent against the dollar since last June.
Despite being Africa’s 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 country’s poorest.