A day after being sworn in as the country’s 16th president, Bola Tinubu yesterday hit the ground running by meeting Central Bank of Nigeria (CBN) Governor Emefiele and Nigerian National Petroleum Company (NNPC) CEO Kyari to strategise on how to engage with labour unions on the removal of fuel subsidies. Following Tinubu’s announcement during his inauguration speech that the fuel subsidy was to be removed, the Trade Union Congress called on the president to suspend his plans and instead engage in robust dialogue and consultation on the issue first.
The Nigeria Labour Congress (NLC) was also ‘outraged’ by the announcement without due consultations with critical stakeholders, particularly as no palliative measures to cushion the effects of the subsidy removal were put in place.
The announcement (on the removal of the subsidy) has caused chaos across the country as panic buying of fuel began almost immediately after Tinubu’s speech on Monday. The price of petrol skyrocketed, with reports that it was selling for as high as NGN1,200/litre in Ebonyi State and around NGN600/litre in other states from less than NGN200/litre previously.
According to Guardian reports the queues at filling stations persisted yesterday, with stakeholders warning about the impact on transportation costs, prices of goods and services, and on the country’s millions of small businesses. With some filling stations closed, several state governors warned oil marketers against hoarding petrol and creating artificial scarcity. The NNPC and Nigerian Upstream and Midstream Regulatory Authority subsequently asked for calm and insisted that, while a ‘potential’ change in price was likely, the country had sufficient stock in storage facilities.
Deputy President Shettima and the NNPC reiterated the need for the removal of the subsidy, with the NNPC disclosing that the federal government owes it NGN2.8tn (cUSD6bn) in fuel subsidy payments. NNPC CEO Kyari stated that ‘since the allocation of NGN6tn in 2022 and NGN3.7tn in 2023, we have not received any payment from the Federation’. Kyari added that, as a consequence, the NNPC had been using its own cash flow to support the subsidy even after fulfilling its fiscal obligations, a situation which has become ‘increasingly challenging’ and affecting the company’s core operations (Pulse, This Day, The Guardian).
The sharp increase in petrol prices is bad news for the country’s near-term inflation outlook. Inflation had already risen to a multi-decade high of 22.2% y/y in April and looks likely rise further, causing further hardship on Nigerians.
In a statement published yesterday, the World Bank said its directors approved a USD1bn loan for Kenya under the Development Policy Operation (DPO) programme for low-cost budget financing as well as policy and institutional reforms. The financing is also aimed at supporting Kenya’s long-term goal of green and inclusive growth.
The first set of reforms will target revenue and expenditure measures to support fiscal consolidation and strengthen the debt management framework, while protecting pro-poor expenditures. These will be augmented by a second set of reforms that improve competitiveness to boost agricultural exports, while the third wave of reforms will focus on strengthening transparency and accountability to improve governance and financial inclusion for private sector-led growth. The approval of the loan comes as Kenya continues to battle USD liquidity constraints amid falling FX reserves and tight financing conditions, which have made it difficult for Kenya and other frontier economies to raise funding in international capital markets. At the end of April, FX reserves stood at USD6.5bn (equivalent to 3.6 months of import cover), down from USD8.4bn a year ago.
Events today: May inflation prints of Kenya (Absa Research: 7.5% y/y) and Uganda (Absa Research: 7.1%); the Bank of Mozambique’s policy rate decision – we expect an unchanged policy rate
