THE Minister of Finance, Budget and National Planning, Zainab Ahmed, recently reiterated the resolve of the regime of the President, Major General Muhammadu Buhari, to remove the prohibitive subsidy on petrol ahead of its departure on May 29. 

This aligns with repeated pledges by the President-elect, Bola Tinubu, to scrap it upon assuming office. 

But, this is much easier said than done.

Beyond question, the subsidy in its present form and size is unsustainable. However, both the departing and in-coming governments should weigh the impact of such a move on Nigeria’s fragile economy before taking the seemingly attractive measure wholesale.

Ahmed explained that the government had delayed its plan to remove the subsidy because of concerns over its effect on the 2023 general elections and the national population census now shifted to May. 

But she said the plan was on course. reflecting a broad consensus, similarly, Tinubu, like the three other major presidential candidates, has said he will remove the subsidy.

The petrol subsidy, its cost, impact on public finances, and incremental reduction, have dominated Nigeria’s public space and the economy for four decades. 

Until recently, every reduction in the subsidy and subsequent increases in the pump prices of petrol since the late 1980s, have provoked nationwide strikes, protests and social upheavals led by trade unions, students, civil society organisations and professionals.

Pump prices have consequently risen from single digit to N11 per litre by the mid-1990s and N185 per litre today. Instead of relief for the treasury and the promised expansion in productive activities with each price hike, however, the subsidy has ballooned, while the formal economy has continued to shrink from diverse shocks. Ironically, increases in pump prices have added to the woes of businesses and households by way of higher costs and inflation, leading to job losses and shrinking investments.

But much of this needless suffering stems from the Government’s refusal to address the root cause of the subsidy. 

This is anchored on the failure to refine locally and achieve substantial domestic self-sufficiency, which itself is the fallout of the monopoly of the Federal Government in refining.

Having run the four state-owned refineries aground, the country is forced to import refined crude, a costly embarrassment for one of the world’s top producers of crude, churning out 1.67 million barrels per day currently, and with installed capacity of over 2.6mbpd. 

So, in effect, the government pays out cash to cover the difference in landing costs and regimented pump prices that has not only been rising astronomically, but has also been riddled by uncontrollable corruption.

However, just as the subsidy is prohibitive, the cost to the economy of very high pump-head prices will aggravate national poverty.

Inflation now officially stands at 21.9 percent, naira exchange rate of N747 to US$1 at the parallel market, and unemployment at 33.3 percent, would all spike.

The way forward, therefore, is for the government to do a phased withdrawal with a firm, short final exit date for the complete scrapping of the cash-based subsidy. 

First, the government should immediately abolish the bridging cost by which it attempts the economically foolish idea of sustaining uniform prices in every part of the country.

Next, it should reduce by half, rather than the total, the current subsidy payment per litre of petrol to avoid an enormous cost from which the economy may not recover