The International Monetary Fund, (IMF) has said the silent re-introduction of fuel subsidy by the President Bola Tinubu administration is expected to gulp almost half of its projected oil revenue this year.
According to the IMF, which made this recommendation in the latest IMF Staff Country Report for Nigeria, the implicit subsidy will cost Africas largest crude producer an estimated N8.43trillion ($5.9bn) of its projected N17.7trillion of oil revenue.
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 fuel, BofA sub-Saharan Africa economist, Tatonga Rusike, 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 Presidents 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 IMF 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 currency has depreciated by almost 70 percent against the dollar since last June. Despite being Africas largest oil producer, Nigeria imports most of its fuel 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 intervention programme targeted at the countrys poorest.
