The reintroduction of gasoline subsidies in Nigeria, just months after their removal, is poised to consume nearly half of the country’s projected oil revenue for the year, according to a report by the International Monetary Fund (IMF). This move reflects the economic challenges facing Africa’s largest oil producer.
The IMF’s recent report indicates that the reinstated subsidy could deplete approximately 8.43 trillion naira ($5.9 billion) out of an expected 17.7 trillion naira in oil revenue. These figures closely align with projections from Bank of America, which estimated the subsidy costs could reach between $7 billion and $10 billion for the year, depending on the volume of gasoline imports, which are anticipated to be between 18 and 25 billion liters.
The decision to resume the fuel subsidy followed initial reforms in June 2023, which were not accompanied by sufficient compensatory measures for the economically vulnerable populations, leading to its temporary halt amid concerns over corruption, as noted by the IMF.
The subsidy was initially removed by President Bola Tinubu at the start of his term in mid-2023 as part of efforts to stabilize the nation’s fiscal environment, with debt-service costs soaring to 96% of government revenues. Following the subsidy’s removal and the subsequent devaluation of the naira, which aimed at establishing a free-floating currency regime, fuel prices in Nigeria more than tripled. This price surge exacerbated inflation rates and sparked widespread protests across the nation.
In response to the economic strain on citizens, the Nigerian government reintroduced a cap on fuel pump prices towards the end of 2023, effectively bringing back subsidies, albeit indirectly. The naira has since depreciated by nearly 70% against the dollar since June of last year.
Despite Nigeria’s status as Africa’s top oil producer, the country heavily relies on imported gasoline due to inadequate domestic refining capacity. However, there is potential relief on the horizon with the anticipated operations of a 650,000 barrel-per-day refinery near Lagos, owned by Aliko Dangote, Africa’s wealthiest person, and another significant refinery in Port Harcourt managed by the state-owned Nigeria National Petroleum Co.
The IMF projects that the fuel subsidy will be phased out entirely within two years as the Nigerian government aims to enhance its cash transfer programs targeted at the nation’s poorest. Approximately 40% of Nigeria’s population lives in extreme poverty.
Olu Verheijen, a senior energy aide to President Tinubu, underscored the government’s stance in March, stating, “All governments have the prerogative to maintain price stability and prevent social unrest. If prices are moving, they reserve the right to intervene.” This statement highlights the ongoing balancing act faced by the Nigerian government in managing economic policy amid fluctuating market conditions.