World Bank Recommends End to Subsidy, Suggests Petrol Price Increase to N750/Litre

 

The World Bank has advised the Nigerian federal government to cease subsidy payments and increase the price of petrol to N750 per litre, asserting that current fuel prices in the country are not cost-reflective. The World Bank’s lead economist for Nigeria, Alex Sienaert, conveyed this recommendation during the Nigeria Development Update (NDU) presentation, December 2023 Edition.

Sienaert stated that the prevailing petrol prices do not fully align with market conditions, hinting at the possible resurgence of the subsidy. He estimated that the cost-reflective pricing for retail Premium Motor Spirit (PMS) should be around N750 per litre, surpassing the current N650 per litre.

The economist highlighted the importance of sustaining savings from the PMS subsidy reform on the fiscal front. The high cost of the gasoline subsidy, according to the NDU report, is adversely affecting Nigeria’s fiscal position, leading to an increase in deficit monetization through CBN Ways and Means financing, contributing to inflation.

The report emphasized the need to avoid reinstating the subsidy, urging continued progress toward market-reflecting pricing. Removing the PMS subsidy, the report argued, creates an opportunity to enhance market competition by enabling other players besides the Nigerian National Petroleum Corporation (NNPC) to import gasoline. This, it asserted, would benefit consumers and generate additional revenues for the Federation Account, benefiting all tiers of government.

The NDU report also forecasted significant savings from removing fuel subsidies, estimated over N11 trillion by 2025. The removal of the subsidy, implemented on June 1, 2023, was projected to save around N2 trillion in 2023, accounting for approximately 0.9% of the country’s total economic output.

While the World Bank’s recommendation has stirred discussions, various observers have called for a home-grown solution to Nigeria’s economic challenges. The fuel subsidy issue has been longstanding and contentious in the country’s economic landscape.