Fuel Subsidy Removal: World Bank Tells Buhari To Remove Subsidy Now Rather Than Later


The World Bank has issued a cautionary advice to President Muhammadu Buhari concerning fuel subsidy. It recommends that the president remove fuel subsidy now if he actually means to do it at all. John Litwack, World Bank’s Lead Economist stated on Tuesday, that the best time to remove fuel subsidy is now. Mr. Litwack made his opinion public at the launch of the new edition of Nigeria Economic Report. He backed up his suggestion by saying that as of yet, the global crude oil price is at its lowest level.

The debate about removal of fuel is ongoing in the country with many Nigerians, including the organised labour, declining the ploy as the Buhari led-government has alluded to its intention to remove fuel subsidy.

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The Minister for Budget and National Planning, Udoma Udoma, while laying bare the Medium Term Expenditure Framework and FG’s N6 trillion budget proposal for 2016, revealed that the government was seriously comparing the options between removing or retaining fuel subsidy next year. From all indications, the government might favor removing, rather than the retaining it.

Irrespective of last Friday’s attempt by the Organisation of Petroleum Exporting Countries, during its 168th conference to retain its production quota in order to make the crude oil market stable, the price of the commodity fell steeply to $37.89 per barrel on Monday from $38.09 on Friday.

Mr. Litwack stated during his presentation of the economic outlook of the global economy and the crude oil market, that the Bank foresaw continuous fall in the price of global crude oil.

He revealed also that it is advisable for the government to take a decision now because if subsidy is removed now, there will not be significant increase in the retail pump price beyond an average of N100 per litre. Doing otherwise, will bring about enormous pressure that will make the people suffer more than they are suufering now. He noted that fuel subsidy obligations were expected to reach 18 percent of all government oil revenues in 2015, stating that if the present regulated price regime of N87 per litre was kept at the same rate, subsidy was projected to climb to over 30 per cent by 2018.

He rounded of by reminding the president that,

The fuel subsidy appears to have vast modest benefits for the majority of citizens, but the costs are quite high,

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 in the Excess Crude Account that could have protected the country from the recent oil price shock.

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