On Tuesday, the Minister of Finance, Budget and Economic Planning, Zainab Ahmed, backed by stakeholders and experts in the economic sector, once again, called for the removal of fuel subsidies.
The call was made in Abuja during the launch of the Nigeria Development Update (NDU) report for 2022, by the World Bank, per NAN.
Ahmed said that the non-removal of fuel subsidy was hurting the nation and impeding investments in human capital development. This is seen in the increasing budget deficit forcing the federal government to borrow more to fund the 2022 Appropriation Act.
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Ahmed, a panelist at the launch of the NDU, said the fund could have been channeled to the health and education sectors.
“Nigerians need to understand that this fuel subsidy government is paying now is affecting the nation. N4.5 trillion spent on subsidies is money we would have invested in health and education, but we are investing it in consumption, which is very wasteful.
“How many Nigerians own vehicles and generators that are benefiting from this subsidy?
“On the fiscal side, this is not something we had planned, but the reality of the times showed increased inflation and food prices are already increasing; so removing subsidy will further escalate the problems,’’ she said.
The appropriation Act originally made provision for the subsidy until April. But the surge in crude oil, which is currently trading around $120 per a barrel and resistance from civil rights organizations, particularly Organized Labour, forced the government to amend the 2022 Appropriation Act to accommodate the exigencies.
Efforts by the Finance Ministry to beat the resistance, including a plan to offer some Nigerians N5,000 monthly stipend, failed. Ahmed said if the subsidy is not removed now, Nigeria will hit an additional N4 trillion deficit.
Other stakeholders who graced the event agreed with the Minister. Gov. Charles Soludo of Anambra State, also a panelist, said the removal of subsidy was long overdue, adding that it benefited nobody.
“Imagine if N2 trillion or N3 trillion is saved today as a result of the removal of subsidy. Each state of the federation could be given about N50 billion to fix roads and the Federal Government will still have some N1 trillion to use.
“If the country continues with the subsidy, the CBN will continue to need money; it is a circuit. That deficit will continue to rise and how does the Federal Government pay its bills,’’? He queried.
The subsidy dilemma, which the federal government has been counting on Dangote Refinery to resolve, has lingered for years. But the solution which hangs mainly on functioning local refineries is usually off the table whenever the debate comes up.
The bone of contention is the amount of suffering the subsidy removal will unleash on common Nigerians who are already barely surviving. With inflation currently at over 17.70%, buoyed by the Russia-Ukraine war that has rattled the global economy, removing the subsidy now will mean pushing more Nigerians into multidimensional poverty. Though the World Bank has long advocated the removal of the subsidy, it has also warned that one million more Nigerians will fall into poverty at the end of 2022, if the current economic trajectory is not overturned.
This is due to rising inflation that is likely going to compound into another recession if drastic measures are not taken to address the economic headwinds.
Presenting his report at the NDU, Marco Hernandez, World Bank’s Lead Economist for Nigeria, said that Nigeria was in a paradoxical situation. He highlighted three policy priorities the country should focus on to rewind the economic downturn. They are as follows: reducing inflation, addressing mounting fiscal pressures at the federal and sub-national levels, and catalyzing private investment to boost job creation.
“The report states that inflation in Nigeria, already one of the highest in the world is likely to increase because of rise in global fuel and food prices caused by the war in Ukraine.
“This is likely to push an additional one million Nigerians into poverty by the end of 2022, on top of the six million Nigerians already predicted to fall into poverty this year due to the rise in prices, particularly food prices.
“The report also states that inflationary pressures will be compounded by the fiscal pressures Nigeria will face in 2022 because of the ballooning cost of fuel subsidies at a time when oil production continues to decline.
“Hence, Nigeria, for the first time since its return to democracy in 1999, and alone amongst major oil exporters, is unlikely to benefit fiscally from the windfall opportunity created by higher global oil price,” he said.
Nigeria has missed the chance to cash in on the oil boom orchestrated by Russia-Ukraine war due to subsidy payments and insufficient oil production that falls short of the output quota set for her by the Organization of Petroleum Exporting Countries (OPEC). Nigeria is among the seven countries that declined in oil production month-on-month. The largest African economy dropped its output from 1,322 thousand barrels per day to 1,258 tb/d, losing its position as the largest oil producer in Africa to Angola, who recorded an increase from 1,168 tb/d in April to 1,176tb/d in May.
This means, replenishing what is lost in subsidy through the oil windfall is out of question as Nigeria’s 2022 budget benchmark was set at $62 and Nigeria is importing refined petroleum products at international market price. The situation inevitably leaves further borrowing as the only way to fund the budget deficit. But that will deepen the N41 trillion public debt crisis that is already gulping nearly 100% of Nigeria’s revenue.
Against this backdrop, the need to remove the subsidy has never been stronger. But it comes with a political consequence that Muhammadu Buhari administration is believed not to have the political will to take on. For a country besieged by mammoth of crises including abject poverty and insecurity, removing the fuel subsidy now is considered political suicide for a-much-criticized government seeking to remain in power beyond 2023.