The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, has disclosed that the Nigerian government has saved approximately $20 billion, equivalent to 5% of the nation’s GDP, due to the implementation of critical reforms in fuel and exchange rate policies.
This achievement resulted from efforts under President Bola Tinubu’s administration to transition to market-based pricing for Premium Motor Spirit (PMS) and the exchange rate. Edun made these remarks during the validation of federal civil service policies in Abuja, marking the first 100 days of Mrs. Esther Didi Walso-Jack as Head of Civil Service of the Federation.
According to him, the savings stemmed from the removal of fuel and foreign exchange subsidies, which previously drained government coffers. Edun highlighted that maintaining these subsidies had cost the country around $20 billion annually, funds that could have been redirected to critical sectors like infrastructure, health, education, and social services. He emphasized that the policy shift has freed up these resources that are now accessible for meaningful investments in national development.
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“An amount of five percent of GDP is what those two subsidies were costing when there was a subsidy on PMS; when there was a petroleum product generally for a long time and when there was a subsidy of foreign exchange. Between them, they cost five percent of GDP.
“If you say GDP was on average, let’s say $400 billion. We all know what five percent of that is – $20 billion of funds that could be going into infrastructure, health, social services, and education.
“And that is what the flow is now coming back into government’s coffers to be able to be deployed in those areas,” he said.
End of Rent-Seeking Opportunities
Edun criticized past practices where individuals and entities exploited the subsidy regime and central bank policies for personal enrichment. These rent-seeking activities allowed individuals to profit without adding value to the economy. He commended the reforms for eliminating these avenues, fostering an environment where wealth creation depends on genuine enterprise and innovation.
“The real change that has happened with the measures of Mr. President is that nobody can wake up and their target for the day or for the week or the month or the year is to get access to cheap funding, cheap funding exchange from the central bank, which they can now flip.
“And overnight, they became wealthy from no value added for doing nothing virtually except you know the right people. Similarly, they can no longer try and be part of a new peak, market and very inefficient petrol subsidy regime as a way of making money overnight,” Edun said.
Economic Opportunities in Agriculture and Exports
The Finance Minister urged Nigerians to embrace new economic opportunities presented by the reforms. He pointed to agriculture and manufactured exports as avenues where individuals can thrive.
He said that the relatively weaker naira, while a challenge domestically, enhances competitiveness for exports such as cosmetics and hair extensions to markets like Kenya, Egypt, and South Africa.
Edun advocated for increased productivity, suggesting that heightened agricultural output could ease elevated food prices, while export-driven industries could create jobs and reduce poverty.
While the savings from the reforms and their long-term benefits are expected, the policy changes have brought immediate economic pain. Higher fuel prices and depreciated naira have increased living costs, raising concerns about the reforms’ social impact.
Critics argue that without robust social safety nets, the economic hardship could overshadow the potential gains.
However, Edun remains optimistic. He said, “The incentive framework has shifted from one of rent-seeking to one that rewards innovation, hard work, and enterprise. This change will create jobs, help reduce poverty, and build a resilient economy.”
If $20bn Was Saved, Why Is the Govt. Still Borrowing?
The statement by Edun that the government saved $20 billion from the removal of the fuel subsidy has raised significant questions about the country’s financial trajectory, particularly regarding its continued reliance on borrowing. Many are now questioning why, despite such substantial savings, the government still resorts to domestic and external loans to fund its expenditures.
The removal of the fuel subsidy hailed as a landmark policy by President Bola Tinubu’s administration, was expected to alleviate fiscal strain. The subsidy had long been criticized for benefiting a select few and contributing to economic distortions.
However, despite these proclaimed savings, the government continues to grapple with fiscal deficits that it has relied on borrowing to address. For instance, the Nigerian Senate, on Friday, approved President Bola Tinubu’s request for a fresh N1.77 trillion ($2.2 billion) external loan to partially finance the country’s N9.7 trillion budget deficit for the 2024 fiscal year.
This reliance on borrowing has raised doubts about whether the savings from the subsidy removal are being efficiently utilized or if they are sufficient to address the country’s pressing financial needs.
It is believed that so far, there is no evidence of the gains from the fuel subsidy removal in Nigeria’s economic and infrastructural development. Many are pointing at the country’s fiscal deficit and growing debt as evidence that the subsidy removal is not yielding the promised result.
Tinubu has borrowed $6.45 billion from the World Bank in just 16 months, according to a document on the global lender’s website. The resulting increase in Nigeria’s public debt profile has compounded the burden of debt servicing on the country’s finances.
The Central Bank of Nigeria (CBN) recently reported a staggering $3.58 billion spent on servicing foreign debts in the first nine months of 2024, a 39.77% increase from the $2.56 billion recorded during the same period in 2023.