Nigeria’s economy has been tainted with uncertainty and anxiety as a result of the World Bank’s $800 million loan to the country as a temporary measure to mitigate the impact of the proposed removal of fuel subsidies in June.
The government of Muhammadu Buhari has repeatedly stated its intention to end fuel subsidies before the inauguration of the incoming administration on May 29, 2023.
As time passes, debates about the consequences of subsidy elimination heat up.
Labour, trade unions, and some oil and gas industry experts have publicly expressed their opposition to the removal of fuel subsidies, claiming that it would harm Nigerians by increasing inflation.
Indeed, the sustenance or removal of fuel subsidies will be a difficult nut to crack for the incoming government.
However, following last week’s Federal Executive Council meeting, Mrs Zainab Ahmed, Minister of Finance, Budget, and National Planning, announced that Nigeria had secured $800 million from the Washington-based World Bank to serve as post-subsidy removal palliatives for Nigerians.
The post-subsidy palliative plans, according to the Minister, will be distributed to 50 million Nigerians, representing 10 million households.
However, Nigerians have expressed concern about the obscurity surrounding the World Bank’s stated sum, wondering if the efforts will not be another white-goose-chase.
According to a report released in September 2022 by the Nigeria Extractive Industries Initiative, the country spent N13.7 trillion ($74.386 billion) on fuel subsidies over a fifteen-year period. (2005-2022).
Similarly, the Federal Government announced N3.36 trillion as payment for the first six months of subsidies (January to June) in the 2023 budget. From 2005 to mid-year 2023, Nigeria’s fuel subsidies would have consumed an average of N17.6 trillion.
Meanwhile, in the face of unequal revenue generation capacity, Nigeria’s total debt stock has continued to rise; the most recent figure is N44.06 trillion.
According to Federal Inland Revenue data, Nigeria’s revenue collection in 2022 was N10 trillion.
The prospect of the country receiving another $800 million loan from the World Bank causes concern among stakeholders.
Muda Yusuf, director of the Centre for the Promotion of Private Enterprise, told newsmen on Monday that borrowing to fund post-fuel subsidy removal palliatives is unusual.
He explained that in the past, fuel subsidies did not involve borrowing, and that palliative care was funded from the savings from subsidy removal.
Yusuf, on the other hand, insisted that the removal of fuel subsidies and palliatives be left to the incoming administration.
“First and foremost, any discussion of subsidy removal and palliatives should be left to the incoming administration.”
“There have been subsidy-related palliatives, but none of them involved borrowing.”
“Previously, palliative care was funded from the savings from subsidy removal, which makes the current proposal rather strange.”
“In addition, there are policy implications to palliative care delivery.” The government should investigate fiscal and monetary policy options to encourage investment in sectors that could alleviate the effects of subsidy removal.
“These include, among others, investors in refineries, pipelines, petrochemicals, marketing, and fertilizer plants.” Incentives should also be provided to encourage investment in the power sector and the use of autogas.”
Furthermore, Mr Idakolo Gbolade, CEO of SD & D Capital Management, stated that with the state of the country’s economy, the removal of fuel subsidies is non-negotiable.
He explained that the funds generated by subsidy elimination would be used to reduce the federal government’s debt burden.
He was concerned that if the World Bank’s $800 loan was not properly channeled, the removal of fuel subsidies would cause additional pain to already stressed Nigerians.
“Removing subsidies is non-negotiable if the incoming administration wants to restructure the economy, eliminate waste, and free up funds for infrastructure development.”
“However, it will put additional strain on an already stressed population, necessitating the need for effective palliatives that are properly channeled.”
“If used properly, the World Bank’s $800 million can alleviate the pains of subsidy removal.”
“It should be noted that this may increase the debt burden, but funds realized from subsidy removal may help the government reduce its debt outlines for financing the 2023 budget.”
“The incoming government must immediately begin looking at ways to restructure the government’s revenue profile in order to increase it and make the country more appealing for more foreign investment in key areas of our economy,” he said.
Regardless of where one stands in the debate, the federal government must come clean about the fuel-subsidy removal plan so that the country does not embark on another wasteful journey that could leave it even more in debt.
