By Emmanuel Addeh in Abuja with agency report
The federal government is considering ways to cushion the impact of fuel-subsidy cut as it weighs the possibility that the reform may stoke popular discontent, an adviser to the nation’s president, Mr. Zakari Ahmad, has said.
While those policies are being formulated, the state is continuing interventions that it says cost an estimated N744 billion ($1.8 billion) a year from 2006 to 2019 to maintain lower gasoline prices, an equivalent of about 10 per cent of this year’s projected government revenue.
“There is broad alignment that deregulation is an urgent need. There is a clear understanding of the challenges that Nigerians face economically and government will be sensitive to that as we craft any implementation,” Bloomberg quoted Ahmad to have said.
Raising pump prices, let alone allowing them to move in line with international crude markets, is a risky proposition for Nigerian politicians.
Many in Africa’s largest economy, which also hosts the highest number of people living in extreme poverty globally, regard cheap fuel as their single dependable benefit from the country’s misspent oil wealth.
The president has been trying since March 2020 to remove the subsidies, with the Minister of State for Petroleum Resources, Timipre Sylva, saying in September Nigeria expected to save as much as 1 trillion naira a year with the abolition of the support.
The government understands, “it can no longer sustain the petroleum subsidy regime,” NNPC Managing Director Mele Kyari said through a spokesman, adding that deregulation will allow the company to no longer be the sole importer of gasoline and “market forces to determine prices of products thus ensuring availability at all times,” he said.
Nigeria’s reserves have dropped $1 billion this year, heading toward levels last seen in 2017, when the economy was recovering from recession.
The decline, combined with the apparent backsliding on subsidies, has resulted in Nigeria’s dollar bonds not performing as well as they could have this year, according to Samir Gadio, the London-based head of Africa strategy at Standard Chartered Bank.
“Nigeria has outperformed lower-yielding sub-Saharan African credits as oil prices rose, but more significant Eurobond outperformance has been constrained by the fall in foreign-exchange reserves and the fuel subsidy backtrack,” he said.