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Heaping debt to debt to end fuel subsidy
The issue of fuel subsidy removal continues to be a thorny one in Nigeria’s political discourse. With the federal government getting funding from the World Bank to put an end to palliatives, many have been questioning the wisdom in the government’s decision; BENJAMIN UMUTEME reports.
The news that Nigeria has secured an $800 million relief package from the World Bank to help cushion the impact of planned removal of its long-held and vexed fuel subsidy, drew the ire of Nigerians.
While there have been arguments for and against fuel subsidy removal, it is pertinent to note that subsidy for petrol has to go.
Before we go into the crux of the matter, it is good to understand the questions around fuel subsidy?
In general, a subsidy is a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.
Breaking the news
Nigeria’s finance minister, Zainab Ahmed, at the weekly post-FEC briefing last week had announced to journalists present at the event that the federal government has secured a $800 funding from the World Bank as part of the proceed to put a final stop to the fuel subsidy removal issue.
According to the finance minister, $800m for the scale-up of the National Social Investment Programme (NSIP) has been secured and it’s ready for disbursement.
She however did not provide details on how much beneficiaries would receive.
“We’ve secured some funding from the World Bank. That is the first tranche of the palliatives that would enable us to give cash transfers to the most vulnerable in our society. We’re on course. We made that provision to enable us exit fuel subsidy by June 2023. “
Data from the Nigeria National Petroleum Company Limited (NNPCL) states that it spent the sum of N4.39 trillion on petrol subsidy. And because it is funding subsidy on behalf of the federal government, it stopped remitting funds to the federation account, thus, leaving the states with the short end of the stick.
Heaping debt on debt
The question many have been asking is: is it worth securing funding from a lending institution to end fuel subsidy.
Expand coverage of shock responsive safety net support among the poor and vulnerable and strengthen the national safety net delivery system.
A perusal of the World Bank’s website revealed that the development objective of the Bank is to expand coverage of shock responsive safety net support among the poor and vulnerable and strengthen the national safety net delivery system.
Further checks by Blueprint Weekend showed that $800 million funding agreement what signed on August 16, 2022. While finance minister, Zainab Ahmed signed for Nigeria, World Bank Country Director, Shubham Chaudhuri.
According to the repayment schedule as seen by our correspondent, “On each January 15 and July 15 commencing January 15,2027, to and including July 15,2046.” The principle amount of the credit repayable expressed as a percentage is 1.65 per cent.
Also, “commencing January 15, 2047, to and including July 15, 2051”, the percentage payable on the principle amount is 3.40 per cent.
Presently, Nigeria’s debt stock stood at N46.25 trillion as at fourth quarter of 2022 but experts are alarmed that it could potentially hit N77 trillion when the National Assembly gives the federal government approval to securitize the Ways and Means of N23 trillion given by the Central Bank of Nigeria to it.
According to data research firm, Dataphyte, the $800 million loan will lead to a 2 per cent increase in Nigeria’s total external debt; a 2.15 per cent increase in the federal government’s total external debt; and a 1.3 per cent increase in Nigeria’s total domestic debt among several others.
The implication is that there would be a further upward push in Nigeria’s already huge debt stock.
The CEO and co-founder of BudgiT, Olusegun Onigbinde insisted that the $800 million World Bank funding was a loan.
“Let’s stop the misinformation that this is a grant. It’s a loan,” the BudgiT co-founder said.
A public affairs commentator, who simply identified himself as Clarence said it was rather “unfortunate that World Bank deemed it necessary to give a loan to a failing state without enquiring how they will pay back. It’s really a shame because this money will be embezzled by the Kleptomaniacs in govt. Let’s hope they will pay back when the time comes.
On his part, Oladimeji was even blunter when he said that rather than ask for loan to cushion the effect of subsidy removal, the federal government should have requested for funding from the multi-lateral lender to fix the nation’s refineries.
“Are our rulers so soft-headed that they couldn’t ask for loans and technical expertise to fix our 445K BPD refineries while waiting for Dangote’s refinery to start as well? Can’t they ramp up government owned oil well production to reduce the price of crude to local refineries to cut,” he said.
However, economist Tope Fasua thinks differently. For Fasua, the federal government was being too reliant on multi-lateral bodies to solve address its challenges.
“But, of course, it’s a bit worrisome that we still have to depend on World Bank, IMF and all these bodies for us to solve our local problems, he added.
What the experts are saying
Many have been wondering why the minister of finance, Zainab Ahmed would wait for over six month before announcing the funding from the World Bank. Many more have argued that if the federal government signs the agreement for the funding in August 2022, why did they not stop subsidy payment in January as initially planned?
There are lots of questions playing in the minds of Nigerians. They have been asking why the loan should be for scaling-up of social safety net instead of stating clearly that it is a palliative to cushion fuel subsidy. Also, some are also wondering why the government would need to borrow $800 million before it can put an end to subsidy. Furthermore, some others are wondering what will eventually happy to the very poor they say they are protecting when cost push inflation hits the economy due to subsidies removal.
In a chat with this reporter, financial analyst, Gabriel Idakolo said the $800 million borrowing is a good initiative if properly channeled.
“The subsidy removal is inevitable if the Nigerian government wants to reduce corruption, stop waste and free up funds for meaningful infrastructural projects. It is also important because it creates a level playing field for operators of the downstream sector of the petroleum industry. Subsidy removal is also bound to have negative impact on the already stressed population; hence the palliative measures are very important to cushion the effect of the subsidy removal. If it is properly implemented would have far reaching positive impact on the economy.
“If the intention of the government in accessing the loan is to provide palliative then it a good initiative
“For subsidy removal to have less impact on the people then there must be palliative and the government should move to ensure all our refineries are working at optimal level.
“The budget for subsidy payments for the first halve of 2023 is N3.2 trillion and to country cannot afford to continue to fund the scheme giving the fact that we are experiencing dwindling revenue,” Idakolo said.
Development Researcher, Adefolarin Olamilekan said the inability of the government to address the country’s myriads of challenges has left citizens short.
According to him, the government should have gotten the buy-in of citizens before ‘collecting’ the loan.
“At this point, the government in our estimation is desirous to let go of the fuel subsidy payment. And the only alternative is borrowing to cushion the effect instead of seeking lasting solution to problems. However, this should not be surprising gong by the current government’s failure to do the needful.
“The federal government at all time understands the psychic of Nigerian due to their inability to disclose sensitive issues like loans. Meanwhile in other climes, citizens are engaged on policy thrust. And at the same time, rally round stakeholders from a cross section of multi-sectoral platform just to get their buy-in into government programmes and policy. We expect better dealing from the Buhari government, but he has disappointed us.
“We are expecting the incoming government to take note of every mistake of the outgoing government on the fuel subsidy problems. It is our firm believe that government must rethink it proclivity for loans as against it open disclosure of same for citizens awareness,” he explained.
Ends
