Nigeria’s economy has been laced with confusion and anxiety over the World Bank’s $800 million loan to the country as a palliative to cushion the effect of the proposed fuel subsidy removal by June.
Muhammadu Buhari’s government has repeatedly disclosed its intention to halt fuel subsidies before the inauguration of the incoming administration on May 29, 2023.
As the clock ticks down, debates on the implications of subsidy removal have intensified.
Labor, trade unions, and some oil and gas industry experts have not hidden their disapproval of the fuel subsidy removal because it would hurt Nigerians by shooting up inflation.
Indeed, for the incoming government, fuel subsidies' sustenance or removal is a hard nut to crack.
But, after last week’s Federal Executive Council meeting, the Minister of Finance, Budget, and National Planning, Mrs. Zainab Ahmed, said that Nigeria secured $800 million from the Washington-based World Bank to serve post-subsidy removal palliatives for Nigerians.
The minister said the post-subsidy palliative plans would be distributed to 50 million Nigerians, representing 10 million households.
But Nigerians have raised doubts over the obscurity surrounding the said sum from the World Bank, wondering if the efforts will not be another white-goose chase.
A report in September 2022 from the Nigeria Extractive Industries Initiative, or NEITI, showed that the country had spent N13.7 trillion ($74.386 billion) on fuel subsidies in fifteen years (2005–2022).
Similarly, the Federal government had included N3.36 trillion in its 2023 budget as payment for the first six months (January to June) of subsidies. Nigeria’s fuel subsidies would have gulped an average of N17.6 trillion from 2005 to mid-year 2023.
Meanwhile, Nigeria’s total debt stock has continued to increase; the recent figure is N44.06 trillion in the face of unequal revenue generation capacity.
In 2022, Nigeria’s revenue collection stood at N10 trillion, according to Federal Inland Revenue data.
Here, the fear of the country getting another $800 million loan from the World Bank sends waves of worries through the minds of stakeholders.
The director of the Center for the Promotion of Private Enterprise, Muda Yusuf, told The Daily Post in an interview on Monday that borrowing to fund post-fuel subsidy removal palliatives is strange.
He explained that in the past, fuel subsidies did not involve borrowing; the practice was that palliatives were funded from the savings from subsidy removal.
However, Yusuf insisted that the fuel subsidy removal and palliatives should be left for the incoming administration to handle.
“First, any conversation on subsidy removal and palliatives should be left for the incoming administration."
“We have had subsidy-related palliatives, and none involved borrowing."
“The practice had been that palliatives were funded from the savings from subsidy removal, which makes the current proposition rather strange."
Besides, there are policy dimensions to the delivery of palliatives. The government needs to explore fiscal and monetary policy options to incentivize investment in sectors that could mitigate the pains of subsidy removal.
“These include investors in refineries, pipelines, petrochemicals, marketing, and fertilizer plants, among others. There should also be incentives to facilitate investment in the power sector, such as the use of autogas”.
Also, the CEO of SD & D Capital Management, Mr. Idakolo Gbolade, said that with the state of the country’s economy, fuel subsidy removal is non-negotiable.
He explained that the funds that would be realized from subsidy removal would reduce the federal government’s debt burden.
He worried that if the said $800 loan from the World Bank is not properly channeled, the removal of fuel subsidies would cause more pain to already stressed Nigerians.
“Removing subsidies is non-negotiable if the incoming government wants to restructure the economy, eradicate waste, and free up funds for infrastructural development.
“However, it will add more pressure on the already stressed populace, hence the need for impactful palliatives that are properly channeled.
“The $800 million from the World Bank, if properly utilised, can reduce the pain of subsidy removal.
“It is noted that this could increase the debt burden, but on the flip side, funds realised from subsidy removal could help the government reduce its debt outlines for financing the 2023 budget."
“The incoming government must immediately start looking at ways of restructuring the revenue profile of the government with a view to increasing it and making the country attractive for more foreign investment in key areas of our economy”, he stated.
Whichever side one stands in the debate, the federal government must come clean on the fuel subsidy removal plan so that the country will not embark on another wasteful voyage that may leave it more strapped in debt.