The Nigerian Economic Summit Group has urged the government to adopt a gradual phase-out of the subsidy.
It made the call in its 2022 NESG macroeconomic outlook titled ‘The last mile: Reforms towards significant improvement in national economic outcomes’.
The NESG said, “There is a need to develop a phase-out subsidy plan. The government can remove the fuel subsidy partly to allow for adjustments to the new prices by the citizens.
“Past experiences in Nigeria have shown that the abrupt removal of fuel subsidies will only stoke public demonstrations and protests.”
Citing an example, it said, “Unlike in the case of Brazil, where authorities removed subsidies on fuel products one after the other, Nigeria could consider a gradual adjustment in the pump price of petrol, perhaps to reflect the state of key macroeconomic stability indicators, such as the exchange rate.”
However, it added that the adjustment would raise another concern as persistent exchange rate depreciation that would translate to higher petrol prices.
It said the government, therefore, needed to address the underlying drivers of macroeconomic instability in the country.
According to the group, one of such drivers is the considerable pressure on external reserves due to high bills on petroleum product imports, which could have otherwise been saved if the existing refineries were in good working condition.
The NESG also said there is need to implement effective and efficient social interventions before subsidy removal to gain citizens’ trust.
One of the key reasons for opposition to fuel subsidy reforms in Nigeria is the absence of sustainable and enduring social protection schemes, it added.
According to the NESG report, the ad-hoc nature of social investment programmes in Nigeria with limited coverage needs review.
It said the government could leverage different platforms such as mobile money, CBN’s Bank Verification Number and the national social register to ensure the coverage of the most vulnerable public members while implementing mitigating measures.