CBN Governor, Godwin Emefiele, Finance Minister Vow Not To Reintroduce Fuel Subsidy

 

The Federal Government would no longer reintroduce fuel subsidy, a letter the government sent to the International Monetary Fund (IMF) has revealed.

This assurance was made in the application for the $3.4 billion loan which has been approved by IMF.

International bodies, including World Bank and IMF, had been urging the Nigerian government to remove the fuel subsidy due to the economic cost, but President Muhammadu Buhari had avoided taking such action in order to prevent triggering inflation and price hike.

However, in the first week of April 2020, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, said Nigeria would no longer pay for subsidy on petrol, citing the global oil sector challenge amidst COVID-19.

But the recent statement made by the Minister of Finance, Budget and National Planning, Zainab Ahmed, and the Central Bank of Nigeria Governor, Godwin Emefiele, in the Letter of Intent sent to the Managing Director of IMF, Kristalina Georgieva, has dashed any hope of a possible return of fuel subsidy.

In the thirty-nine page document seen by Allnews, the Nigerian government said, "The recent introduction and implementation of an automatic fuel price formula will ensure fuel subsidies, which we have eliminated, do not reemerge,” Ahmed and Emefiele told the IMF chief in the letter dated April 21, 2020.

Why price hike didn't occur

Although President Buhari had feared that removal of fuel subsidy could cause price hike, but the Coronavirus outbreak had taken a toll on global oil industry - as lockdown reduced demand for oil - and coupled with the oil price war between Saudi Arabia and Russia, oil price crashed, eliminating the need for fuel subsidy.

The oil price was reduced from N145 per litre to N125 per litre on March 18, 2020, while the Petroleum Products Pricing Regulatory Agency further reviewed the oil price downward to N123.50 - N125 per litre on March 31. Note that, despite the removal of subsidy, the government still regulate the pump price.

Fear of future price hike

Currently, the oil price is at a rate that doesn't allow Nigerians feel the removal of the subsidy. This is because of the impact of COVID-19 on global oil trade. But while it is not known when the pandemic will end, it is certain that it will end.

So, the true effect of the removal of fuel subsidy will be known by Post-coronavirus era. Even though the government is still regulating the pump price, possibility of the oil price shooting upward is high as demand for oil would increase aftermarket and global economy resume to normal.

Restriction on movement would have been lifted totally and industries would be back to production, driving the demand for oil; then will the effect of fuel subsidy removal be gaged.