- Central banker calls for increased oil output, end to subsidy
- Naira faces devaluation pressure from limited dollar supply
According to Bloomberg article published on March 2, 2023, scrapping Nigeria’s gasoline subsidy and implementing reforms in the petroleum industry would significantly improve the outlook for the naira, a member of the central bank’s monetary policy committee said.
Reversing the decline in crude output in Africa’s biggest oil producer would boost foreign reserves that are currently insufficient to maintain exchange-rate stability, MPC member Idiahi Obadan said in an opinion published on the bank’s website on Wednesday. Nigeria’s foreign reserves stood at $36.6 billion in December — equivalent to 6.2 months of imports of goods and services.
“The foreign-exchange market and exchange-rate outlook could improve significantly if the petroleum subsidy regime is abandoned, oil production and exports are stepped up significantly, and domestic oil refining resumes in the country,” Obadan said.
Nigeria’s government will spend 6 trillion naira ($13 billion) this year on a subsidy that makes gasoline prices in the West African nation among the cheapest in the world. President-elect Bola Tinubu has pledged to end the payments, which have been criticized by the World Bank and the International Monetary Fund.
The subsidy of gasoline in Nigeria enables “privileged people and companies” to corruptly appropriate the nation’s resources, while leaving consumers worse off, Obadan said.
“The gross inefficiency and corruption in subsidy administration in the past, coupled with the current difficult economic situation of the country, make it imperative for a re-consideration of the continued retention of the subsidy,” he said.
Nigeria’s central bank has had to ration dollars to reduce pressure on its reserves, which declined from a peak of $62 billion 15 years ago as crude production dropped amid rampant theft, vandalism and falling investment. Oil exports account for about 80% of the country’s foreign-exchange income.
