The federal government of Nigeria has fixed a new date to end the controversial fuel subsidy, after it failed in its past attempts.
The new date was disclosed on Thursday by the Minister of Finance, Budget and National Planning, Zainab Ahmed, who appeared before the House of Representatives’ Ad Hoc Committee investigating the Petroleum Products Subsidy Regime from 2013 to 2022.
The Minister said according to the new plan, which is contained in the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper, the subsidy removal will be implemented by the first half of 2023. Ahmed said the MTEF/FSP, which was approved by the National Economic Council and the Federal Executive Council, respectively, has been transmitted to the President of the Senate, Ahmad Lawan, and Speaker of the House of Representatives, Femi Gbajabiamila.
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She said in a statement that not ending the subsidy means that the federal government will have to borrow more than N6 trillion to offset the budget deficit that will result from it.
“One thing that stands out in the Medium Term Expenditure Framework was that if the nation holds on to fuel subsidy as it is designed now, we will be incurring from January to December, a subsidy cost of N6.4tn. But we suggested to the Federal Executive Council, and the council approved that, maybe, we could look at the option of exiting the subsidy (regime) half year. So, if we did that, then the cost would be N3.35tn, which is half of the N6.7tn.
“The Federal Executive Council approved the second option. That is the option that was conveyed by His Excellency, the President, to the National Assembly. But Let me also say that even though this is a reduced option, it would mean that we are borrowing more than we would have borrowed if we did not have fuel subsidies. In 2022 we are carrying the cost of subsidy throughout the whole year.
“Recall that the initial MTEF and approval by the parliament was for us to exit the subsidy by June of this year. But during the course of the year, making assessment of the difficult fiscal challenges in the economy and the hardship that our citizens are bearing due to high inflation and other challenges, we were asked to re-submit our plans and review them to include provision for fuel subsidy throughout the year 2022. That was how we came back to parliament with an incremental expense from N443bn which we had planned to up to N4tn subsidy expense in 2022,” she said.
Ahmed further stated that the subsidy payment is consuming a huge amount of funds that could have been channeled to other vital sectors of the economy.
“This situation is not desirable and it is not sustainable. It is putting the country in a very serious, dire financial situation and we do hope that we will be able to exit this subsidy regime in the shortest possible time.
“The N3.35tn in the approved MTEF that is now before the National Assembly for consideration could have been funds that would apply to other vital sectors of the economy such as health, education and social protection. So, we are carrying a burden and we must sit back as citizens and really assess whether it is beneficial for us to continue to do so,” she said.
However, the Minister did not say how the government plans to ameliorate the economic hardship that will emanate from the subsidy removal, which has been the major reason for conflict between labor unions and the federal government.
Nigeria is paying a subsidy on petroleum products because it does not have a functioning refinery, and has been importing refined products at international rates. Removing the subsidy while there is no refinery means that the Nigerian people, who are largely living beyond the poverty line, will have to buy petroleum products at unaffordable rates.
In addition, Nigerian businesses rely on power generators to function due to the country’s epileptic electricity supply. There is concern that removing the subsidy whilst the nation is still grappling with unstable electricity supply will compound Nigeria’s economic situation as it will shoot the cost of living further up.
However, experts have raised concern about the timeline for the subsidy removal. The removal is slated to take effect by June 2023, a month after President Muhammadu Buhari has left office.
It’s more or less like crossing a bridge and blowing it up, then asking the person coming behind to rebuild it, if he wishes to cross or get drowned.
It’s a regime characterized for irresponsibility, it’s never in their nature to be firm and responsible, so it’s about soft options: take loans for capital projects (of course with no clear plan for generating revenues from where you invested the money), then levy more tax on the same people, if there’s still shortfall, then tax their phone calls or any basic things all people use.
I hope we will be sincere enough to judge the next administration fairly, looking at the unfavourable conditions it will be greeted with from the outset. But what is very difficult to argue convincingly is that the same party that couldn’t take firm decision for eight years will magically make tough decisions, or is there evidence that their new candidate pushed for those tough decisions to be made?
You cannot reward bad behaviour with accolades, else you are setting yourself up for annihilation.