The World Bank has advised President Muhammadu Buhari to act now if he is seriously considering the removal of fuel subsidy.
The World Bank’s Lead Economist, John Litwack, said Tuesday the best time to take such decision is now.
While the Buhari administration has hinted at its intention to remove fuel subsidy, the debate is still on in the country with many Nigerians, including the organised labour, rejecting the plan.
The issue was discussed Monday at the Executive Council of the Federation meeting.
The Minister of Budget and National Planning, Udoma Udoma, while unveiling the Medium Term Expenditure Framework and the government’s N6 trillion budget proposal for 2016, said the government was seriously weighing the options between removing or retaining fuel subsidy next year.
The government’s body language appears to favour the former, rather than the latter.
Mr. Litwack said at the launch of the new edition of Nigeria Economic Report that if the government really meant to take a decision on the issue of fuel subsidy removal, the best time to act would be now that global crude oil price was at its lowest level.
Despite last Friday’s attempt by the Organisation of Petroleum Exporting Countries, during its 168th conference to maintain its production quota so as to stabilize the crude oil market, the price of the commodity slumped further to $37.89 per barrel on Monday from $38.09 on Friday.
While presenting the economic outlook of the global economy and the crude oil market, Mr. Litwack said the Bank foresaw continuous decline in global crude oil price.
He said now is the best time for the government to scrap the subsidy, as doing so would not push retail pump price beyond an average of N100 per litre, or generate the kind pressure that would negatively impact on the people beyond what they are currently facing.
“The fuel subsidy appears to have vast modest benefits for the majority of citizens, but the costs are quite high,” Mr. Litwack noted.
“There is a strong tendency for the cost of the fuel subsidy to increase over time as increasing domestic demand for petrol outpaces growth in oil output or revenues.
“The $35 billion cost of the fuel subsidy during 2010 – 2014 was one of the reasons why Nigeria was unable to accumulate a fiscal reserve n the Excess Crude Account that could have protected the country from the recent oil price shock.”
He said fuel subsidy obligations were expected to reach 18 per cent of all government oil revenues in 2015, pointing out that if the current regulated price regime of N87 per litre was maintained, subsidy was projected to increase to more than 30 per cent by 2018.