Zainab Ahmed, the minister of Finance, Budget, and National Planning, on Tuesday, June 14, 2022, expressed concern that the federal government’s continuous retention of the controversial fuel subsidy regime was hurting Nigeria’s ability to service its debts.
Also, the World Bank has projected that Nigeria may post n N5 trillion loss in oil revenues in 2022, despite the oil price rally due to the retention of its fuel subsidy policy.
Owing to the negative consequences of the fuel subsidy policy, Anambra State Governor, Prof. Chukwuma Soludo has called for it’s the government to phase it out immediately, noting that the Federation Account Allocation Committee, FAAC, hasn’t credited states in recent times as a result of the burden of fuel subsidy.
They all made the remarks at the hybrid launch of the World Bank’s Nigeria Development Update titled: “The Urgency for Business Unusual,’ held in Abuja.
But speaking at a different gathering, the acting Accountant General of the Federation (AGF), Mr. Chukwuyere Anamekwe, on Tuesday, June 14, 2022, lamented that the government’s revenues were currently under serious attack and called for the articulated deployment of fiscal discipline and strategies to mitigate identified challenges.
The Finance Minister called on Nigerians to understand that fuel subsidy was causing a massive fiscal burden, saying a situation whereby the federal government borrows for consumption was wasteful.
Ahmed said: “This premium motor spirit (PMS) subsidy is costing us an additional N4 trillion than was originally planned. So, this is an unplanned deficit. We have gone to the National Assembly; we have gotten approvals, but the approval was simply for us to cut down on some of the investment costs. “So, investments that we needed to make in oil and gas sector which we are delaying and deferring to a later time and reducing the rollout of those investments. But we also had asked that we needed to borrow more which is very serious.
“Already we have borrowing increasing significantly and we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate so it is a very difficult situation.”
She said further: “So Nigerians need to understand that this PMS subsidy we are carrying now is hurting the nation, its impeding the government’s ability to be able to invest in human capital development. N4.5 trillion is money that we could have invested in health or education.
“But where we are investing it in consumption, which is very wasteful, because how many Nigerians own cars that are benefiting from this subsidy.”
She further pointed out that Nigeria was facing challenges from not gaining from the current oil price rally.
“We are in some kind of crossroads. It is not hearsay to say that Nigeria has not derived what it should from the current high crude oil prices, rather rising crude oil prices are posing significant fiscal challenges to our economy and may lead to some negative receipts and indeed we have started seeing already those negative receipts.
“There are three factors preventing Nigeria from fully benefiting from the current boom in the international crisis. First of all, our prediction had fallen below Nigeria’s estimated capacity and the OPEC quota because of insecurity vandalism, and theft. Secondly, the domestic price of payments has remained fixed, while global PMS prices have continued to rise.
“The third is that rising international crude prices also increase the burden of PMS because we buy refined petroleum products. The higher crude oil price goes in the global market, the more we’re paying for PMS, and by maintaining this PMS subsidy we as a country, unfortunately, forego investments that will have used the monies into essential infrastructure, goods or services that would have increased the overall productivity of the nation. So this is really the bane of the major issue that we’re facing now.”
Meanwhile, the World Bank has projected that Nigeria may post a N5 trillion loss in oil revenues in 2022 as oil prices continue to rally and the war between Russia and Ukraine rages. This is N2 trillion above the multilateral institution’s earlier prediction.
The Washington-based institution also declared that although Nigeria’s growth prospects had improved, inflationary and fiscal pressure increased considerably, leaving the economy much more vulnerable.
Speaking during the unveiling of the NDU, the World Bank Country Director for Nigeria, Shubham Chaudhuri, who presented the highlights, predicted that inflationary pressure would be compounded by the fiscal pressure Nigeria would face this year because of the ballooning cost of fuel subsidy at a time when production continues to decline.
The World Bank chief stated that based on this, Nigeria, for the first time since its return to democracy, and as the only major oil exporter, was unlikely to benefit fiscally from the windfall opportunity created by higher global oil prices.
He said: “When we launched our previous Nigeria Development Update in November 2021, we estimated that Nigeria could stand to lose more than N3 trillion in revenues in 2022 because the proceeds from crude oil sales, instead of going to the federation account, would be used to cover the rising cost of gasoline subsidies that mostly benefit the rich.
“Sadly, that projection turned out to be optimistic. With oil prices going up significantly, and with it, the price of imported gasoline, we now estimate that the foregone revenues as a result of gasoline subsidies will be closer to N5 trillion in 2022.
“And that N5 trillion is urgently needed to cushion ordinary Nigerians from the crushing effect of double-digit increases in the cost of basic commodities, to invest in Nigeria’s children and youth, and in the infrastructure needed for private businesses small and large to flourish, grow and create jobs.”
He stated that inflation in Nigeria, already one of the highest in the world before the war in Ukraine, was likely to increase further as a result of the rise in global fuel and food prices caused by the war.
According to the bank’s estimates, this was likely to push an additional one million Nigerians into poverty by the end of 2022, in addition to the six million Nigerians that were already predicted to fall into poverty this year because of rising prices, particularly food prices.
According to the report, Nigeria’s growing macroeconomic challenges in 2022 highlight the continuing urgency of a departure from business as usual, and the need for consensus around a package of robust reforms.
It highlighted three policy priorities: Reducing inflation through a sequenced and coordinated mix of exchange rate, trade, monetary, and fiscal policies including the adoption of a single, market-responsive exchange rate.
The priorities also included addressing mounting fiscal pressures at the federal and sub-national levels by phasing out the petrol subsidy (estimated to cost up to N5 trillion in 2022) and redirecting fiscal resources to investments in infrastructure, education, and health services; increasing “pro-health taxes”, and improving tax compliance.
Others are catalysing private investment to boost job creation by improving the transparency of key government-to-business services and eliminating trade restrictions.
“Despite the better-than-expected performance of the services and agriculture sectors and higher oil prices stemming from the war in Ukraine, Nigeria is experiencing a curious case of lower fiscal revenues.
This is limiting the government’s ability to expand basic services, support the economic recovery, and protect the poor during this difficult time,” said Marco Hernandez, World Bank Lead Economist for Nigeria and co-author of the report.
In addition to assessing Nigeria’s economic situation, this edition of the NDU also casts a spotlight on the unintended effects of Nigeria’s trade restrictions; the importance of investing in adolescent girls to defuse Nigeria’s demographic timebomb; and the imperative of bringing Nigeria’s out-of-school children back to school.
Also, speaking during an exclusive interview with THISDAY, Chaudhuri maintained that Nigeria needs urgent reforms and a coordinated mix of policies that involve exchange rate management, monetary policy, fiscal policy, and trade.
“The bottom-line is that we are more concerned now than we were six months ago because we see the fiscal pressures and the inflationary pressures, building up in a way that will directly impact the livelihoods and just everyday choices of millions of Nigerians will have to make and the government’s ability to respond to those needs will be limited by the fiscal pressures.
“Nigeria has always proved to be resilient in the past, we certainly hope Nigeria gets through at least another side of elections. But there has to be a broader consensus amongst the elites, and then ultimately, Nigerian people as a whole, that this situation on the fiscal front and in terms of certain key some of the key reforms that we’ve highlighted cannot continue.
“There is a need for Nigeria to embark on a different path that will help Nigeria realise its full potential. It’s become even more urgent. And then the fact that growth has picked up is great but that’s just at the most first step. Right now, the fiscal and inflationary pressures just have to be dealt with a sense of urgency.”
On his part, Hernandez said: “In terms of reducing inflation, what we have highlighted previously, both in public and private conversations with governments and stakeholders across the country, is that there needs to be a sequence and coordinated mix of policies involved in exchange rate management, monetary policy, fiscal policy, and trade.”
Soludo, however, advised the federal government to immediately remove fuel subsidy.
“We have had this analysis over and over and so the diagnosis is clear. We know this problem, we know that Nigeria is grappling with several unsustainables, be it in the area of security or in the area of macroeconomic framework and subsidies that nobody gets. We subsidise those who own cars but have no money to build the roads for them to drive on,” he added.
Soludo lamented that sub-nationals were bearing the cost of subsidies, he added: “In May, States received zero from the federation account coming from oil and we’ve reached the end and there is only one way. That is the federal government decides that it wants to subsidise PMS. Why do you have to charge it to the sub-nationals? They should charge it on the revenue of the federal government and not charge on the federation.”
“The solutions are pretty obvious, just get them off, and remove this subsidy like yesterday. This ought to have been removed like yesterday, it benefits nobody.
“If we continue with subsidy, central bank would continue to print money, the deficit will continue to rise and how does the federal government pay its bills? It has got to resort to ways and means and the ways and means continue to fuel inflation and the depreciation of the exchange rate.”
Source: ThisDay
