The pronouncement shook the confidence of investors with
many fearing that Nigeria’s fiscal crisis will worsen by the action to delay
subsidy removal.
Debt due 2051 fell almost 2 cents on the dollar to post the
worst performance among 645 bonds in the Bloomberg Emerging Markets Sovereign
Index. Eleven other notes with different maturities from the nation figured in
the 20 largest losers after Nigerian newspapers reported the collapse of the
subsidy removal plan.
The subsidy plan can’t be ended while the government
transition is in progress, said Finance Minister Zainab Ahmed, according to a
briefing. After the new president is sworn in on May 29, the National Economic
Council could either advise to wind up the plan immediately or extend it beyond
June.
“Everybody agrees that the subsidy should be removed very
quickly because the cost is only not efficient but is also not sustainable,”
Ahmed stated. “What I said is that it is not going to be removed now, which
means it will not be removed before the transition is completed.”
According to a report the removal of the subsidy at this
time had become a political minefield, especially after the anger over the
currency exchange farce and the pain it caused the poor in Nigeria.
The finance minister now says preparatory work to remove the
subsidies should continue in consultation with all key stakeholders, including
members of President-Elect Bola Tinubu’s incoming administration.
“If the committee’s work determined that the removal can be
done by June then the work plan will be designed to exit as at June,” she said.
If the determination is that the period is extended, it will mean that the
country will have to “revisit the Appropriation Act, for example.”
President Muhammadu Buhari’s outgoing government had fixed
June 1 to exit the fuel-subsidies arrangement, which is forecast to cost
Nigeria at least $13 billion this year. It had set aside reserves to cover the
expense for the first six months of the year only, meaning the government may
have to prepare a supplementary budget to cover the additional cost.
Africa’s biggest economy is already in a dire fiscal
situation after spending 96% of revenues servicing debt in 2022. Removing the
subsidies, which consume almost all of oil earnings, was expected to ease the
fiscal pressures.
Buhari is leaving the decision on subsidies to Tinubu, who
pledged during the election campaign to end the costly payments.
The decision to suspend the subsidy removal will mean that
the government must now submit a supplementary budget to the National assembly
to avoid a situation where the government runs out of money to spend.
The announcement has been condemned by some commentators.
Deputy-President of the Lagos Chamber of Commerce and Industry (LCCI), Gabriel
Idahosa, criticised the Federal Government for lacking the political will to do
the needful and end fuel subsidy for the better, noting that on several
occasions, interest groups such as the LCCI as well as economists and
financiers across the country had advised the government to bite the bullet and
end a subsidy regime that has significantly damaged the economy.
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