World Bank advises Nigeria to end fuel subsidy within six months

Nigeria should end its expensive fuel subsidy regime within three to six months, the World Bank said on Tuesday.

Reuters reported that the bank advised that the removal of the subsidy must be accompanied by “aggressive reform effort” that  “could contribute more to growth than a sustained period of high oil prices.”

Africa’s largest economy devotes a huge chunk of its annual spending on subsidy to lower the prices of premium motor spirit or petrol. Removing the costly support has caused a face-off between the government and the labour.

Already, the government has spent at least $2.1 billion (about ₦864 billion at ₦410.59 per $) on fuel subsidy in the first nine months of 2021.

“Urgent priorities for the next three to six months include reducing inflation, improving exchange-rate management … eliminating the PMS subsidy … and improving infrastructure,” the World Bank said in a report.

“The Premium Motor Spirit (PMS) subsidy is eroding Nigeria’s limited fiscal space to provide essential services.”

Removal of the subsidy will lead to increment in the prices of the product on which millions of people depend on to power their electricity generators for their homes and businesses because of pervasive erratic power supplies.

The chief executive of now-privatised Nigerian National Petroleum Corporation Mele Kyari said in September that an increase in the price of fuel at the time would have a direct bearing on the wellbeing of the citizenry and national security.

World Bank is the second international lender to advise Nigeria to remove the fuel subsidy in November.

International Monetary Fund said last week that Nigeria must remove the subsidy completely.

“The complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor,” IMF said in its preliminary findings at the end of its official staff visit to the country under the Article IV Mission.

“The mission stressed the need to fully remove fuel subsidies and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act.”

Nigeria’s finance Zainab Ahmed said last month that fuel and electricity subsidies have not been included in the spending plans for 2022.

Like World Bank and IMF, Ahmed described the subsidies as “retrogressive”.

“Efforts at addressing revenue leakages include concluding the service-wide implementation of IPPIS; dimensioning cost of tax waivers and promoting policy dialogue and transparency around tax waiver regimes; elimination of regressive subsidies on petrol price and electricity tariffs; a cost-to-income-ratio cap for Government Owned Enterprises (GOEs) with a view to improving remittances to the Federal Government’s coffers,” she said.

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