Nigeria could pay as much as 3% of the size of its economy as fuel subsidy this year, the International Monetary Fund has said, acknowledging the Tinubu administration is paying subsidy the government has repeatedly claimed ended last year.
The IMF, which has backed the removal of petrol subsidy and devaluation of the naira, despite the devastating impact on livelihoods, maintained its prediction the Nigerian economy will grow by 3.3% this year, citing a pick-up in services and trade sectors, according to Reuters. That is higher than 2.9% recorded last year.
It however said acknowledged that Nigeria’s growth outlook was still challenging with food inflation exceeding 40% in March.
“If Nigeria grows at 3.3% that is just above the population dynamics, which is a big challenge,” IMF mission chief for Nigeria, Axel Schimmelpfenning, told journalists, measuring economic growth against population growth.
President Bola Tinubu scrapped petrol subsidy on assumption of office last May and his administration devalued the naira twice – driving annual inflation to 32.2% in March.
The currency devaluation in a bid to close the gap between the official and the parallel markets rates, backfired, pushing the price of fuel to historic levels as Nigeria relies on costly dollars to import petrol.
This has forced the government to resume payment of subsidies – a reality it has not publicly acknowledged.
Non-existing but costly subsidy
The IMF forecast that fuel subsidies could cost up to 3% of Nigeria’s gross domestic product this year as the increases in pump prices of petrol have not kept up with their dollar cost of importation, Mr Schimmelpfennig said.
Nigeria’s projected GDP for 2024 stands at N296.4 trillion. Should three percent of this be allocated to fuel subsidy, it would amount to N8.9 trillion, potentially marking the highest-ever expenditure on fuel subsidy in the country.
In 2022, the last full year of subsidy payment, the government spent about N4 trillion to subsidize petrol.
“Committed to Ending”
Mr Schimmelpfennig however said the government remains committed to phasing that out in another one or two years.
“The reforms are focused on how to raise that growth so that Nigerians can see real impacts on their living standards,” Mr Schimmelpfenning said.
Regarding the hardship the reforms have caused, he said things will take time to shape up well for the benefit of Nigerians.
“We think a lot has happened. We also have to recognise that the problems built up over many years were quite severe. We can’t expect that everything is going to be resolved overnight.”
Mr Schimmelpfenning said scaling up a cash transfer programme and boosting government revenues so that the country has more resources to provide services to its citizens is a key priority.
He applauded the Central Bank of Nigeria’s (CBN) recent interest rate hikes to curb inflation, calling for a data-driven approach to further rate tightening.
The IMF urged the CBN to build up its foreign exchange reserves and recommended a transparent and balanced framework for forex interventions aimed solely at smoothing out excessive short-term volatility.
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