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Subsidy Removal Won’t Spike Inflation – World Bank

World Bank Country Director for Nigeria, Shubham Chaudhuri, yesterday, spoke extensively on the planned removal of subsidy on Petroleum Motor Spirit (PMS), lingering foreign exchange crisis, rising sovereign debts and other macroeconomic issues, suggesting that the removal of subsidy may not remarkably cause a spike in inflation.

Speaking during a courtesy visit to The Guardian, Chaudhuri, who has served in his current capacity since 2019, said historical data, including statistical analyses carried out by the World Bank, have not shown that there would be a remarkable rise in inflation should Nigeria remove fuel subsidy and PMS price increases.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, had last week said the government would scrap the controversial social scheme next year and replace it with N5,000 monthly transportation grants to about 40 million poor Nigerians for a year.

The statement has expectedly raised fresh debate on the subsidy scheme, which is said to have gulped trillions of naira. Labour, the organised private sector (OPS) and other stakeholders have described the proposal as absurd.

The Nigerian Labour Congress (NLC) said the plan was an open invitation for unrest and revolt, while the Trade Union Congress (TUC) expressed shock that government could come up with the idea when negotiations on subsidy removal were yet to be concluded. The Senate, on its part, said the grant proposal was not captured in the 2022 budget, wondering how the government intends to implement it.

Beyond the absurdity, there is a question as to which, between PMS subsidy and transportation grant, is most cost-effective for the government. With the Minister’s estimations, the country will spend between N180 billion and N240 billion monthly on the transport grant programme as against N150 billion projected spending on PMS subsidy, which suggests the deficit created by subsidy payment would not still go away, at least for a year.

This new proposal comes just as the Conditional Cash Transfer Programme has come under intense scrutiny. President Muhammadu Buhari disclosed that 1.6 million poor and vulnerable households, comprising more than eight million individuals benefit from the cash transfer programme. But his critics have punctured the figures. There has been flip-flops from his cabinet members on the numbers reached and amounts disbursed.

On the new proposal, there are questions on the credibility of data the government will use in dispensing the transportation grants. The most basic source of data, the national census, has not been conducted in the past 15 years. The last exercise – carried out in 2006 – was mired in controversy and protests.

The World Bank Country Director, was not specific on the subsidy exit strategy, but he was certain the programme is not sustainable anymore even though there was ‘no answers’ to the lingering questions it has raised.

He, thus, suggested a healthy dialogue as a necessary route to achieving “a national consensus” on the exit strategy and how to manage the impacts its eventual removal could leave on struggling Nigerians. He insisted that the scheme does not benefit the majority of poor Nigerians, as most public transport vehicles run on diesel.


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