Ahead of the planned removal of petroleum subsidy in June, the Federal Government announced that it has secured $800m funds from the World Bank to provide palliatives to over 50 million Nigerians. As to be expected there have been mixed feelings over the development as some critics have argued that the largesse may not serve the real purpose.
The removal of the much hyped petroleum subsidy will be a reality by June this year, when the provision for it in the 2022 budget would have expired.
Ahead of the planned subsidy removal, the Federal Government has secured $800m from the World Bank, to provide post-petroleum subsidy palliatives for over 50 million Nigerians.
Minister of Finance, Budget and National Planning, Zainab Ahmed, revealed this to State House Correspondents on Wednesday, after this week’s Federal Executive Council chaired by the President, Major General Muhammadu Buhari (retd.) at the Aso Rock Villa, Abuja.
According to Ahmed, the $800m fund forms for the first tranche of palliatives are ready to be disbursed to 10 million households in the form of cash.
“There’s a provision (of the Petroleum Industry Act) that says 18 months after the effectiveness of the PIA that all petroleum products must be deregulated. That 18 month takes us to June 2023.
“Also, when we were working on the 2023 Medium Term Expenditure Framework and the Appropriation Act, we made that provision to enable us to exit fuel subsidy by June 2023.
“We’re on course, we’re having different stakeholder engagements, and we’ve secured some funding from the World Bank that is the first tranche of palliatives that will enable us to give cash transfers to the most vulnerable in our society that have now been registered in a national social register.
“Today, that register has a list of 10 million households. 10 million households are equivalent to about 50 million Nigerians,” she said.
On how much funding the Federal Government received from the World Bank, the Minister said “$800m for the scale-up of the National Social Investment Programme at the World Bank. And it’s been secured, it’s ready for disbursement.”
However, she noted that the government must raise more resources to enable it to do more than cash transfers.
According to her, wide-ranging negotiations are underway to deploy non-cash palliatives such as a “mass transit” system for workers’ daily commute.
“So there are several things that we’re still planning and working on, some we can start executing quickly, some are more medium-term implementation.
“There are a lot of discussions going on at different levels, including with members of the transition committee of the incoming government,” she said.
There has been a wave of criticism against the Federal Government’s planned removal of subsidy on petrol, otherwise known as premium motor spirit, PMS, and its decision to secure an $800 million World Bank facility as a palliative to cushion the effect on the people.
Expectedly, the organised labour unions including the Nigeria Labour Congress, NLC, Trade Union Congress, TUC, Nigeria Employers Consultative Association, NECA, and northern youths, under the aegis of the Northern Youth Council of Nigeria, NYCN are among those opposed to the largesse, which they described as a Greek gift.
While the NLC, TUC and NECA have argued that there would be no fuel subsidy removal without local refining of crude, even as they kicked against the $800 million palliative.
A member of the NLC who would not be named the labour movement insisted that there would be no subsidy removal without local refining of crude to stave off the importation of petrol.
“We have nothing to do with petrol subsidy removal, nor do we have any business with the $800 million secured from the World Bank for palliatives. We have told the government what to do and we have also let them know that we will not accept the removal of subsidy without locally refining the product in the country,” he said.
Reacting in a similar vein, the Trade Union Congress, TUC, also rejected both subsidy removal and the government’s $800 million palliative to cushion its effects, saying the Federal Government was on its own.
TUC’s Secretary General, Nuhu Toro, said Organised Labour never had any discussion with the Federal Government on palliatives.
He said: “This is another neocolonialism tactic by the World Bank to hold Nigeria hostage. It is shocking to hear that the Federal Government has secured $800 million for the so-called palliatives.
“The government did not discuss with Organised Labour palliatives. The government is on its own.
“It is instructive to note that social dialogue is undermined in this circumstance. Over the years, Nigeria has been misled by the International Monetary Fund, IMF, and World Bank. It is unacceptable to us.
“There is no doubt that our country’s debt burden and high-interest rate will be worsened by this development. We have made it clear that the government must fix our refineries and address the issue of the local refining capacity of Nigeria.”
On its part, the Nigeria Employers’ Consultative Association, NECA, faulted a $800 million grant from the World Bank to the Federal Government for palliatives, saying among others, previous palliatives had proved not to palliate the economic woes of the citizens.
Speaking through its Director-General, Wale-Smatt Oyerinde, NECA said fixing local refineries must be the pre-condition for the removal of subsidy.
He said: “We commend the efforts of the Federal Government in its bid to provide support to millions of Nigerians who would be affected by the eventual subsidy removal. We must also commend the World Bank for considering Nigeria worthy of the grant.
“It is without a doubt that an abrupt removal of the subsidy without any aid to cushion the hardship this would heap on the masses, especially the most vulnerable in the society, could lead to extreme forms of poverty.
“The cost of living is already at a pace inconsistent with household incomes and the disposable income of workers and Nigerians, in general, has been eroded significantly by myriads of challenges. These issues also affect employers considerably and significantly.
“While we support the removal of fuel subsidies and also commend the support of the World Bank, we believe the government should not shy away from the fundamental issues. These issues include fixing the refineries as a precondition for the removal of subsidies.
“The questions that successive governments have refused to answer are, why can’t the refineries work? If millions of dollars had been expended on Turnaround Maintenance, TAM, why are the refineries still not working?
“Why is it difficult to prosecute those that have collected money for the TAM and refused to fix the refineries? These questions beg for urgent answers.
“It is worthy of note that over the past eight months, Nigerians have been buying petrol at different prices far above the approved price. We, on several occasions, had called on the government to fix the refineries and be deliberate about establishing the right institutional and policy framework to keep them running. We had hoped this would have been given attention first.
“We cannot overemphasise that the government must stop using scarce resources to fix policy problems. It is both unrealistic and unsustainable. The subsidy regime is a scam and has not in any way benefitted the so-called “vulnerable” citizens.
“Therefore, it makes no economic sense to inject cash in the form of palliatives into an economy that is already beset with unending inflationary pressures.
“The $800 million at best is equivalent to about N360 billion and when you divide this by the targeted 10 million households, that amounts to approximately N36,000. What significant or tangible effect would this have on anyone, irrespective of status?
“We will only end up adding more woes to our shrinking economy. What we request is a more all-encompassing institutional structure to manage the gradual removal of subsidies after fixing the refineries and not the proposed palliatives.
“It is worthy of note that previous palliatives had proved not to palliate the economic woes of the citizens.
“We would, again, reiterate that the government must fix all the refineries. If the government is truly interested in doing this, which appears to be the most important palliative it can provide to the citizenry, then all those who have continued to sabotage every effort at fixing and having them function at optimal capacity must be held culpable.
“That is the first bit of it. As a matter of urgency, as the subsidy regime gradually comes to an end, accountability must be prioritised. All those who had any involvement in the subsidy regime directly or indirectly should be investigated.
“Our anti-graft agencies should brace up to the occasion and apprehend the situation, with a view to recovering stolen funds.”
Other analysts who have equally upbraided the move by the Federal Government argued that past palliatives were not properly managed.
For many people, there is a direct correlation between the growing external debts and socioeconomic growth of the country; hence they have called for caution in the disbursements of the funds for productive use.
According to the Debt Management Office, the country’s debt stock had risen to over N46 trillion, increasing by over N6 trillion in 2022 alone.
The Lagos Chamber of Commerce and Industry, LCCI, asked the government to re-strategise on revenue generation, such as a shift in focus to equity financing, among others, while the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, NACCIMA, called for a higher level fiscal discipline by government.
Also the Director General, LCCI, Dr. Chinyere Almona, said the government should emphasise strategies on revenue growth, while blocking leakages, among other measures.
Almona stated: “LCCI recommends that the government must shift focus to equity financing, divestment or shedding of its equity holdings in state-owned enterprises, real estate, and infrastructure to reduce its debt commitments and improve its fiscal situation.
“Both capital and interest payments on borrowed sums expose the country’s fiscal vulnerabilities.
“Also, the government should, as a matter of urgency, emphasise strategies on revenue growth while blocking leakages. Importantly, the government may want to consider the need to deregulate the downstream subsector of the oil industry to block a major drain on revenue.
“Most importantly, following the commendable launching of the restructured Ministry of Finance Incorporated, MOFI, as the arrow head of Nigeria’s efforts to optimise national assets by President Muhammadu Buhari on February 1, 2023, LCCI wishes to urge that copious references should henceforth be made to the growth in the stock of financial assets that Nigeria owns in corporate equities, real estate and infrastructure spaces and the returns Nigeria is generating on them.
“This should be done each time the government of Nigeria is providing updates on the growth in the stock of the financial liabilities Nigeria owes and the costs it is incurring on them, to provide local and global observers a balanced picture of our financial evolution.”
In his reaction, the Director General of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, NACCIMA, Mr. Sola Obadimu, said the government should exercise a higher level of fiscal discipline and ensure value for money in project implementation.
He stated: “There’s a huge need for a higher level of fiscal discipline as well as a need to get value for money spent.
“Some of the indirect effects may be rising inflation rates and lower quality of life of the citizenry on an average level and, if not checked, it could get calamitous if we end up with a debt crisis later.
“This is a situation where creditors are not motivated to lend us more and/or we are unable to service our current debts as scheduled.
“In summary, we need to exercise more fiscal discipline and be more accountable by getting good value for money spent for a start. Accountability is key.”
In his reaction, David Adonri, Vice Chairman, Highcap Securities, noted that deficit budgeting and extra-budgetary expenditures of FGN were mainly responsible for the rising public debt stock.
According to him, the government lacks budget discipline and works at cross purposes to monetary policy.
“For financial wellbeing of any organisation, private or public, the debt/revenue ratio must be balanced in such a way that default threat is minimised. Now, to avoid default, the Federal Government must reschedule repayment and balance its budget.
“Revenue generation is not the problem but overspending, new debts and huge debt servicing are reasons for escalating debt stock and erroneous impression that revenue is insufficient. As it appears, this administration is determined to sink Nigeria further into the debt trap,” he stated.
The CEO, Centre for the Promotion of Private Enterprise, CPPE, Dr Muda Yusuf, said all that was needed was the political will to cut down on expenditure by reducing the size of government.
He stated: “We are already at a debt threshold that is not sustainable. The deepening of the debt crisis could crystallize insolvency risk. Elevated debt burden should be avoided as much as possible.
“What is needed is the political will to cut expenditure and undertake reforms that could trim the size of government, reduce governance cost and ease the financial burden on the government.
“The naughty issue of fuel subsidy needs to be addressed. We have to take steps to gradually exit from the subsidy regime if we are to avoid fiscal collapse.
“Additionally, it is imperative for the country to operate as a true federation which it claims to be. The unitary character of the country is making it difficult to unlock the economic potential of the sub-nationals. It is perpetuating the culture of dependence on the federal government.
“Fiscal sustainability is driven by both cost and revenue. Therefore managing the major drivers of cost and revenue is imperative. As far as possible, the government should push back in sectors or activity areas where the private sector has the capacity to deliver desired outcomes.
“We should see more commissioning and privatisation at all levels of government. This would allow for the infusion of more private capital into the infrastructure space.”
==== Ibrahim Apekhade Yusuf, The Nation ====
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