The Nigerian government is set to make substantial savings of over 21 trillion naira ($28 billion) over the next two years, according to the World Bank. This development is anticipated to relieve the financial burden facing President Bola Tinubu’s administration, which has been grappling with record fiscal deficits and ballooning debt-service responsibilities.
Shattering subsidy chains
The projected savings are largely a consequence of two significant economic policy shifts: the scrapping of gasoline subsidies and a deliberate decision to allow the Nigerian currency, the naira, to weaken. These changes promise to slash the country’s budget deficit down to 3.9% of the GDP by 2025 from the current 5.1%.
The removal of gasoline subsidies is expected to provide a windfall to Nigeria’s state oil company, allowing it to export crude oil that was previously earmarked to underwrite the subsidies. Furthermore, by easing foreign-exchange controls, the government can convert overseas earnings at market rates, sidestepping the drawbacks of previously “overvalued” rates.
New horizons for economic expansion
The World Bank forecasts that, with the timely implementation of these urgent reforms, Nigeria – Africa’s largest economy – could see a 4% expansion from 2024 onwards. This progress will be welcomed by a nation that has, for years, resisted calls to eliminate its costly gasoline subsidies and multiple exchange rates, which have been barriers to growth.
In addition to these measures, the World Bank also suggested that Nigeria needs to pursue further steps to boost non-oil revenue, reduce inflation, and expand its social safety net to shield the poor and the most vulnerable. One proposal put forth was for the government to create a compact with Nigerian citizens, linking the phased-out subsidy to compensatory cash transfers.
Domestic reactions to subsidy removal
Closer to home, oil marketers revealed on Thursday that the Federal Government has saved over N400 billion since the subsidy on Premium Motor Spirit (gasoline) was eradicated on May 31, 2023. However, they also predict that gasoline prices will likely rise in July, as a result of the government’s recent decision to float the naira against the US dollar.
Chinedu Okonkwo, the National President of the Independent Petroleum Marketers Association of Nigeria, emphasized the positive impact of the subsidy removal. He noted, “Right now, they (the government) are making money. At least with this removal of subsidy, the government has racked in hundreds of billions, whether in naira or dollars.”
Nigeria’s ambitious economic recalibration promises significant fiscal improvements. However, the full impact of these changes, especially on everyday Nigerians, remains to be seen as the nation navigates these new economic policies.
