Experts loud on what he must do before subsidy goes
As Nigeria moves closer to the end of President Muhammadu Buhari’s administration amidst severe economic woes, experts have continued to air their views regarding the best way forward for the incoming government.
Top on the discussion is the fuel subsidy conundrum. Most economists believe the removal of fuel subsidies which is long overdue will boost the economy, advising that certain things must be put in place first.
As it stands, the Buhari administration has failed to remove the fuel subsidy even though it said it only postponed its removal. According to the Minister of Finance, Budget and National Planning, Zainab Ahmed, the government did not suspend plans to remove fuel subsidy but expanded the committee to involve teams from the incoming government and state governors.
While reacting to the impact of sustaining petrol subsidy, the Governor of Edo state, Godwin Obaseki said the federal government may not be able to pay workers’ salaries beyond June 2023 without resulting to massively printing money or removing fuel subsidies. Most experts share in governor Obaseki’s worries about the payment of workers’ salaries as well as how the new administration can remove subsidy without increasing workers’ salaries to absorb the shock.
They are also concerned about the impact of removing subsidy, on the masses.
In all these concerns, Paul Alaje, an economist, observed that the real problem Nigeria has, is the decision and policy it undertakes. According to him, “In economic terms, Nigerians should not be paying for subsidy. Unfortunately, because of policy, decision, monetary and fiscal, all together, the Nigerian government is forced to pay subsidy.
“In 2015, the exchange rate official window was 199, at the parallel market it was between 320 to 360. If that rate was to hold today and we are buying PMS between 190 to 195, the truth is that there would be no subsidy.”
Briefly analysing the situation on ground, Alaje said “The GMD NNPC said in February this year that the amount government is subsidising per litre is 202 naira and that we are consuming up to 66m. He multiplied the numbers to say that the government is paying over 400 billion per litre. By how much have we devalued naira, it’s now more than 200 naira, because the official rate as we speak is over 460. So if we are at 199 and ensure that we work on this economy that we don’t allow the currency to devalue, are we still going to say we are paying for a subsidy? So, who exactly is responsible for the management of the Nigerian economy?”
Alaje who spoke during Arise TV interview, further exposed the inconsistencies in the government’s handling of the fuel subsidy.
He noted that “successive governments from Ibrahim Babangida’s regime to civilian, all had an interest in removing subsidy and during this Buhari tenure, Adams Oshomole at one time, said there was no subsidy and later they said there was a subsidy. Also, in 2020, the then minister of state for petroleum said the subsidy had been removed and the same GMD of NNPC reiterated that the subsidy had been removed.
Today, the government is still paying for subsidies partly because of policy and other factors. Nigerians should not be made to pay for poor governance and poor economic policy that the government has made in recent times.”
Reacting to Governor Obaseki’s statement, he said “I’ve listened to Governor of Edo state’s comments and also a number of international organisations such as IMF submission about why subsidy should be removed. Another submission they’ve made is about why the Nigerian government should stop borrowing. When Obaseki talked about printing money, he spoke in technical terms, not printing physical money; that will of course induce inflation. “Officially we have debt of 46 billion but there are ways and means and between 2019 to 2022 alone, the cost of servicing only advances collected from CBN not to pay back, was over 4 trillion naira; just to service that debt that goes to CBN.
339 billion was used to service in 2019; 912 billion in 2020; 1.22 trillion in 2021; and of course last year we spent 1.64 trillion. Now we are at the devil and the deep blue sea. If we go the way of borrowing, the incoming government will receive a debit cheque from President Buhari for approximately 70 trillion naira; that is not money to build roads but money Nigeria is currently owing. “There are other debts that are projected in this year, so where is the way forward? If we are owing this much are we saying we should keep borrowing?”
Critical steps to be
taken before fuel subsidy removal
Alaje insisted that before the subsidy is removed, there are critical steps the incoming administration must take. “Subsidy should have been removed in 2013 and there was another opportunity in 2016. The first thing the Nigerian government must do is to make refineries work,” he said. This according to him is important so that “Nigerians that are buying per litre of petrol at 350 will not suddenly be made to pay 800 naira for committing no sin. Our local refineries must work. Government is spending billions of naira on making refineries work; in fact, we have workers at the functional refineries; that can only happen when the government is managing a business.”
He therefore recommended that the private sector should manage these refineries adding that while private refinery is important, there’s a need for government refineries to work as well.
“We also have a private refinery that the government said it’s relying on will work. Even though I support a private refinery, the danger of having one single refinery is that we are leaving the destiny of over 222 million users on that company.”
He also stated that food inflation is one of the things to be noticed as soon as subsidy is removed stressing the need for government to take proactive steps to avoid it. “Inflation in Nigeria is over 22%; the projection of CBN for inflation is between 6 to 9%; by all means, inflation must be a single digit. The price of diesel today is 750 naira per litre compared to someone using PMS to move goods to the public.
“What we should do is that the Nigerian Railway Corporation has both the standard and narrow gauge rails. So, the government should extend the narrow gage lines to different communities where food is produced to enable farmers to move goods to the public.”
Another serious issue is the servicing of ways and means. This year alone, Alaje said, it may be as high as 3 trillion suggesting that “What this administration needs is to generate revenue and to do that it must know where the monies are.
“Unfortunately, the equipment to discover what revenue people are generating especially those in the tech- most not even owned by Nigerians, which return trillions and trillions of naira, but the revenues are not properly collected. So, the incoming administration must think of how to boost the economy from less than 10 trillion to approximately 30 trillion.”
Why government may keep borrowing
On the recent demand by Nigeria Labour Congress that Nigeria should not incur more debts to avoid more economic crisis, Alaje posited that the “bitter truth is that the incoming administration will find it impossible to run without borrowing, except there are other things the government wants to do.
“I don’t also think that they will just come and remove fuel subsidy because to abruptly remove it is going to cause a lot of distortions. We need to be careful, some economists say subsidies should be removed while some say naira should be devalued.
They devalued naira just February 2021 and the implication of that devaluation was that 1 trillion naira was added to our debt profile.
I am never in support of subsidy but removing it, doesn’t cause a bigger challenge. So, what they should plan in the medium term is to find how to boost revenue without much impact on poor Nigerians; they’ll borrow whether announced or not.”
Still, on Nigeria’s debt management, he said, “IMF staff report published last year stated that by 2025 or 2026, total revenue generated in Nigeria may not be enough to even service our debts, so how do we service our debts.” The government he insisted, must create an enabling environment for jobs and for the private sector to thrive and create jobs. If there is no power, unfortunately, there’s nothing we can do.”
Responding to Femi Adesina who said the government does not create jobs but enables the environment, he asked, “If Adesina wants to go on holiday, which country will he prefer; the one with the kind of power supply we have in Nigeria or the country with constant power supply, the kind of insecurities we have in Nigeria, or the relatively secure. Those are questions we should be asking those that are leading us so that they can make better economic policy.”
Depreciation of foreign remittances responsible for the bad economy—Mbonu
Also lending his voice to issues relating to the economy, Arise TV business analyst, Chika Mbonu blamed the depreciation of the foreign remittances from Nigeria’s diaspora as a major undermining factor. According to him, “Nigeria gets foreign exchange from about four sources; oil proceeds, exports, loans. If you go through these sources I mentioned, you see how oil struggled throughout the whole year; production even fell beyond a million barrels a day, and then turn around to bring in PMS into the country. So, the one that has been very consistent has been the diaspora remittances.
“The increase in ‘japa’, the CBN’s introduction of naira for dollar programme whereby we’re paying 5 dollars for any diaspora that sends in remittances through CBN approved remittance company, have negative impact. “Report shows that between 2021 and 2022, students visas increased by more than 200% while work visa increased by more than 100%, that tells you what is happening.”
Mbonu stated further that Nigeria needs to intentionally, focus on diaspora because, there lies one of the solutions to our problems in foreign exchange, adding that, “PWC report is saying that diaspora remittances are becoming more reliable than our oil.”
On governor Obaseki’s statement, he said, “Obaseki is an investment banker who had in the past, talked about this issue about three/four years ago and everybody vilified him. About spending, the government spends money, pays salaries, acquires properties, assets, etc. They are spending money, the issue is how do they fund it. Those who were criticising and attacking Obaseki when he talked about this issue of government printing money, when CBN’s report came out and said that CBN’s ways and means to the government of Nigeria was actually about 21 trillion, I wonder why people did not apologise to him.”
”We have seen the agenda of the incoming government and I ask where is the money. Don’t be surprised if we go back to ways and means again of funding by the incoming government because if you look around, where is the money going to come from? “Governor Obaseki said its either printing of money or subsidy is removed. He was talking like a professional while Ngige was talking as a politician. The issue is that salaries will be paid; no civil servant will be owed but how is that salary funded. But Obaseki is basically saying that if you increase workers’ salaries, how are you going to fund it? Is it from oil that we are struggling to break even, taxes, we are still struggling. The only thing remaining is ways and means. 21 trillion is a lot of money. That’s about 2 years budget of the country in those years and It tells you that that’s where it’s going to. As I look at the short term, I don’t see where the money is going to come from to fund the government,” he added.
Source: Vanguard
