Thursday, 25 November 2021 04:11

Subsidy Removal: FG To Spend N200bn On Palliatives Monthly

The federal government said it would be spending about N200 billion monthly to provide social welfare packages to very poor Nigerians to cushion the effects of fuel subsidy removal next year.

The federal government is keen to end some of the fiscal imbalances occasioned by the regressive fuel subsidy regime and had decided to end subsidy on petroleum products next year.

 

But mindful of the economic impact the removal will have on poor citizens with expected increase in the price of fuel and the multiplier effect on the cost of other goods and services, the minister of finance, budget and national planning, Mrs Zainab Ahmed, said N5,000 palliative will be disbursed to an estimated number of 40 million Nigerians below the poverty line to cushion the effect of the subsidy removal that is planned to be implemented from July next year.

It is not clear yet if the proposed amount for the poor and most vulnerable Nigerians was budgeted for in the 2022 budget that is currently before the National Assembly.

The minister who made the remarks yesterday at the launch of the World Bank Nigeria Development Update (NDU) yesterday failed to state the duration of the social programme.

 

The International Monetary Fund (IMF) had last week asked the federal government to remove the fuel and electricity subsidies and provide social welfare measures to cushion effects of the proposed removal of subsidy on power and petrol.

The government had said it was ending electricity subsidy by December 31, 2021 and will commence the operation of a market reflective electricity tariff system. The mission stressed the need to fully remove fuel subsidies and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act.

 
 

The finance minister said the final number of expected beneficiaries would be dependent on the resources available after the removal of the fuel subsidy, indicating that the government had not still had a clear-cut implementation process for sharing of the N5,000 palliative.

Mrs Ahmed put the figure of the poorest population of the country at between 20 and 40 million, which are expected to be the beneficiaries.

IMF had told the government that implementation of cost-reflective electricity tariffs by January 2022 should not be delayed. “Well-targeted social assistance will be needed to cushion any negative impacts on the poor particularly in light of still elevated inflation,” the Bretton Woods institution said in a recent assessment speech on Nigeria.

 

Recently, the minister of finance told a local television that petroleum under-recovery, popularly known as fuel subsidy, was  a major drain on the nation’s economy which ought to have been scrapped to free up money for critical sectors like health and education.

“It is a major waste, a major drain on the economy. We are worried that we are spending money we should be spending on education and other areas,” the finance minister said when she appeared on Politics Today programme on Channels television.

She said there is no provision for subsidy in the 2022 budget from July next year.

Mrs Ahmed said ahead of the plan to remove the fuel subsidy by next July, government is currently negotiating with labour unions while also providing social welfare packages for more Nigerians to cushion the expected effect of the removal of subsidy on their livelihoods and businesses.

She said government is also working with development partners, including World Bank to provide alternative means of transportation for Nigerians as palliative.

 

On road infrastructure, Ahmed said there is a toll policy that has been approved on roads for government to recoup the monies spent on road projects. She however said government is not looking at recovering the funds immediately, adding that those plying the roads will pay tax from the economic gains from the good roads.

On the concerns that there is ubiquitous poverty in the land despite huge borrowings by the administration, Mrs Ahmed said Nigerians have to be patient with the government.

“It is sad that some people are hungry but we have to do what we have to do to ensure that everything is all right,” she said.

The finance minister said political solution, not fight on the pages of the newspapers, is the solution to the lingering issue of $418 million Paris club refund between the federal and state governments.

 

 World Bank Calls For Reduced Deficit Financing By CBN

Meanwhile, the World Bank has urged the President Muhammadu Buhari administration to remove fuel subsidies, reduce deficit financing by the Central Bank of Nigeria (CBN) and reduce fiscal pressure through domestic revenue mobilisation.

The bank said in its Nigeria Development Update (NDU) entitled, “Time for Business Unusual,” which was released yesterday, that the approach was critical to address inflation, Foreign Exchange management, and fiscal pressures currently facing the nation’s economy.

According to the bank, the Nigerian government took bold measures to mitigate the effects of the COVID-19 pandemic in 2020 through reforms, but “the momentum of the reform agenda has waned, undermining Nigeria’s long-term growth prospects.”

The report claimed that “the insufficient supply of foreign exchange (FX) issues related to the predictability of exchange rate management, the unsustainable subsidy on the premium motor spirit (PMS), burdensome trade restrictions, and the sizeable fiscal deficit financing by the Central Bank of Nigeria (CBN) are undermining the business environment, compounding underlying constraints on domestic revenue mobilisation, foreign investment, human capital development, and the delivery of public services.”

It indicated that despite a strong initial recovery and resurgent global oil prices, Nigeria’s pre-crisis challenges were threatening the post-crisis recovery, highlighting the need to depart from business-as-usual policies.

The report noted mounting fiscal pressures due to lower-than-expected revenues in 2021 and the rising cost of the premium motor spirit (PMS) subsidy.

It said that in contrast to past periods of high oil prices, this time, the government had not been able to fully benefit from the oil boom because oil production had fallen below Nigeria’s estimated capacity and the OPEC+ quota due in part to rising insecurity and the higher cost of the PMS subsidy.

Commenting on the report, the World Bank country director for Nigeria, Mr. Shubham Chaudhuri, said, “Even though Nigeria’s economy exited a pandemic-induced recession, several challenges persist, including double-digit inflation, declining incomes, and rising insecurity.

“In 2022 the federal government plans to spend about N3,000 ($7) per person for health, while the cost of the PMS subsidy for next year could reach N13,000 ($32) per person.”

Similarly, the bank’s Lead Economist for Nigeria and co-author of the report, Mr Marco Hernandez, said, “Not only is the PMS subsidy costly, but it mainly benefits richer households. Nigeria has the opportunity to establish a ‘compact’ with citizens that eliminates the subsidy and uses the savings to provide targeted cash transfers to lower-income households, invest in job-creating programs, and improve its fiscal position.”

According to the NDP, under a business-as-usual scenario, GDP per capita would continue to decline, but reforms could accelerate growth.

 

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