The International Monetary Fund (IMF) has stated that President Bola Tinubu’s administration’s quiet return of petrol subsidy is anticipated to consume about 50% of its estimated oil earnings for this year.

Based on the IMF’s assessment, Africa’s largest producer of crude oil is expected to incur an implicit subsidy of around N8.43tn ($5.9bn), which will reduce its projected N17.7tn of oil earnings. This advice was stated in the most recent IMF staff country report for Nigeria.

The Bank of America estimated that Nigeria may incur a cost of $7 billion to $10 billion this year if it imported a quantity of gasoline ranging from 18 billion to 25 billion litres. Tatonga Rusike, an economist specializing in sub-Saharan Africa at Bank of America, stated in a written communication.

This recent comment was made about a year after the President, during his inaugural speech, publicly halted the disbursement of subsidies.

“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. Petrol subsidy is gone,” Tinubu had declared.

The President’s declaration resulted in a surge in petrol prices, which rose from N197 to a range of N480 to N570. The pump price was then increased to N617 per litre and is currently being sold for prices ranging from N620 to N700 per litre.

The report read, “Fuel subsidies were reformed in June 2023, however, adequate compensatory measures for the poor were not scaled up promptly and subsequently paused over corruption concerns.”

“The devaluation of the naira days later, which was aimed at creating a free-floating currency, led fuel prices to more than triple, fanning inflation and protests.

“To help Nigerians cope, authorities started capping fuel pump prices below cost, reintroducing implicit subsidies by end-2023,” the IMF said.

The currency has experienced a depreciation of around 70% against the dollar since last June. Nigeria, although it is the biggest oil producer in Africa, relies on imports for most of its gasoline requirements due to insufficient refining capacity to satisfy domestic demand.

The International Monetary Fund (IMF) stated that it anticipates the elimination of the fuel subsidy to be fully implemented within two years. This will occur as the government expands its cash transfer program, which is specifically aimed at assisting the most impoverished individuals in the country.

The International Monetary Fund (IMF) has upheld its projection of a 3.3% growth rate for Nigeria’s economy in 2024, an increase from the 2.9% recorded in the previous year. This prognosis is based on the improvement observed in the services and commerce industries.

According to the IMF, the economic prospects in Africa’s most populous country and leading oil producer remain difficult, with a 40% increase in food price inflation in March, which has raised concerns about food security.

“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.

President Bola Tinubu has implemented extensive reforms since assuming office around one year ago. These measures include reducing expensive petrol and power subsidies and depreciating the naira currency twice within a year to decrease the difference between the official and secondary market exchange rates.

According to the Fund’s projection, fuel subsidies could amount to 3% of GDP this year since the rise in pump prices has not matched their dollar cost. Schimmelpfennig stated that policymakers are determined to gradually eliminate these subsidies within the next 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,” Schimmelpfenning said.
Global ratings agencies have reviewed Nigeria’s economic outlook upwards due to the impact of reforms, with Fitch the latest to revise Nigeria’s outlook to positive from stable on May 3.

“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,” he added.

Schimmelpfenning emphasized the importance of expanding a cash transfer program and increasing government income to enhance the country’s capacity to deliver services to its population.

The IMF commended the Central Bank of Nigeria (CBN) for its recent implementation of interest rate hikes as a means to control rapidly increasing inflation. The IMF also emphasized the importance of using data-driven methods to further tighten interest rates.

The International Monetary Fund (IMF) has advised the Central Bank of Nigeria (CBN) to increase its foreign exchange reserves. Additionally, the IMF has suggested that the CBN should establish a clear and fair framework for foreign exchange interventions, with the primary goal of mitigating excessive short-term fluctuations in the market.