On Monday, the 29th of May 2023, Bola Ahmed Tinubu officially ascended the reins of power as the President of the Federal Republic of Nigeria.
In his inauguration speech, he made a significant announcement, the removal of fuel subsidies. According to the President, he noted, “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.”
Also Read: The Fuel Subsidy Break: Government Should Amend PIA To Legally Suspend Removal of Subsidy
The removal of fuel subsidy has been a subject of great controversy, mainly due to the flip-flopping stance of the Buhari administration. If this decision to remove it is final, it would have significant implications for the Nigerian economy and the general public.
The decision may generate a public outcry from organized labour in the country, however, it is a decision long overdue. The proposed removal of fuel subsidy has garnered increasing support from financial experts, multilateral organizations, and government officials, who have strongly urged the Federal Government to take action.
The World Bank, for instance, has highlighted the potential adverse effects of subsidy payments on public finance and the potential for posing debt sustainability concerns in Nigeria. During its Article IV Consultation with the Nigerian Government, the International Monetary Fund (IMF) also emphasized the importance of the government fulfilling its commitment to remove fuel subsidies by mid-2023.
Fuel subsidy in Nigeria is currently being catered for by NNPCL as the company spent an estimated $10 billion on subsidies in 2022. Thus ensuring the state-owned oil company did not remit any funds into the federation account throughout 2022. However, in 2023, the Federal Government assumed the responsibility of subsidy payments by allocating a budget of $7.5 billion for such payments during the first half of the year.
Amidst ongoing discussions surrounding fuel subsidy, there is a prevailing concern that the removal of subsidies will exacerbate hardships for Nigerians, as it is expected to result in an increase in petrol prices. In November 2022, the MD of NNPCL Mele Kyari noted that the landing cost of petrol had hit N510/litre. With the NNPCL reportedly paying between N200 and N300 as subsidies on a litre of petrol, transferring this cost to Nigerians will exacerbate conditions for people already grappling with ever-increasing inflation rates.
To cushion the effects of subsidy removal, the Federal Government under Muhammadu Buhari secured an $800 million credit facility from the World Bank. The credit facility is expected to serve as a post-fuel subsidy for 50 million Nigerians. According to the ex-Minister of Finance, Zainab Ahmed, this palliative will be a cash transfer to the recipients, and the first tranche will be to 10 million Nigerians.
Presently, there exists significant uncertainty surrounding the specifics of the proposed fuel subsidy removal. Nevertheless, following the announcement made by the new President, there is one aspect that has become clear. Fuel subsidy will be removed.