The World Bank has advised President Muhammadu Buhari’s administration to discontinue funding for fuel subsidies and instead focus on other pro-poor causes in order to reduce poverty in the country.
In its latest Nigeria Development Update (NDU) report, released on Tuesday, the bank warned that continuing to pay fuel subsidies “will generate significant fiscal costs.”
The bank stated that the amount spent on fuel subsidies by the Buhari administration far outweighed the amount spent on other critical sectors such as health, education, and social protection.
The World Bank’s report partly read:
In 2021, Nigeria’s petrol subsidy cost around $4.5bn, or roughly two per cent of GDP, far exceeding federal government spending on health, education, and social protection. Therefore, diverting spending away from the petrol subsidy towards more pro-poor causes could help spread the gains of growth, which is essential for reducing poverty.
The 2022 amended budget (yet to be adopted at the time of this publication) allocates N4tn (almost two per cent of Gross Domestic Product) for the petrol subsidy, higher than the combined budget allocated for education, health, and social protection.
The bank warned that the cost of the petrol subsidy would skyrocket because higher global petrol prices would necessitate larger subsidy payouts if pump prices remained frozen.
This is not the first time a global financial institution has called for the removal of fuel subsidies. Recall that the International Monetary Fund IMF in 2021 said that if the Muhammadu Buhari regime does not end “implicit fuel subsidies and higher security spending,” Nigeria’s fiscal deficit will worsen in 2021 and public debt will rise to 43% in five years.
In January, the Buhari regime said it would enforce complete fuel subsidy removal in July, promising to provide Nigerians with N5,000 transport allowance to cushion the economic aftereffects.
However, with citizens threatening nationwide protest and Nigerian Labour Congress vowing to shut down the country should fuel subsidy be removed, Abuja chickened out, announcing the postponement of the policy.
In March, the Buhari regime in March said it stood down the planned removal of fuel subsidy due to pushback from citizens and to avoid consequences in the 2023 general elections.