The Federal Government is unlikely to do away with a wasteful petrol subsidy practice until after the general elections in 2023 even though a new oil law abolishing the practice was signed into law last August, the Economist Intelligence Unit, (EIU), said in a report yesterday.
“Instability is chronic in some areas in Nigeria, and inflation and unemployment accentuate the problem; this backdrop creates uncertainty for much needed but unpopular economic reforms and EIU broadly expects that tax increases and the removal of subsidies for petrol will not happen until after the 2023 general elections”, the EIU noted.
Nigeria is sinking under the weight of petrol subsidy which is set to cost the country some N3 trillion this year, more than the country has spent on capital projects each year since 2016. The government passed the Petroleum Industry Act (PIA) in August 2021 after many years of dilly-dallying.
Though the law abolishes the petrol subsidy practice, the government has carried on with it despite the drain it has increasingly become on the country’s finances.
The government claims the need to protect the poor from more economic hardship is the reason it has continued to make petrol prices artificially low despite rising oil prices even though economists have often argued that petrol subsidies benefit the rich much more than the poor.
Indeed high unemployment, which at 33% is the second-highest globally, and pervasive poverty carry substantial additional risks to political stability and create a hostile atmosphere for unpopular reforms like the removal of petrol subsidies, according to the EIU.
“The Buhari administration has a track record of making U-turns when faced with severe political resistance and this complicates the medium-term economic and fiscal policy outlook”, the EIU said.
It is why the EIU believes it may take a new government to finally end the wasteful practice with deteriorating fiscal conditions likely to force the hand of a new administration.