Nigeria to borrow more as FG shifts subsidy removal beyond June

THE Federal government has suspended the scrapping of petroleum subsidy in June amid concerns of more borrowings and huge sums expended on debt service.

The National Economic Council (NEC) announced today in Abuja that it had agreed that petrol subsidy should not be removed in June, as earlier planned.

The minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed this to State House correspondents shortly after the valedictory Council meeting presided over by Vice President Yemi Osinbajo at the Council Chambers of the  Presidential Villa, Abuja.

Ahmed said the Council agreed on the need for continued discussions on the issue, adding that the Federal government, together with states and representatives of the incoming administration, required more preparatory work on it.

The Federal government had already built a N11.34 trillion deficit in the 2023 budget to be financed through domestic and foreign borrowing sources, including multilateral loan drawdowns.

According to data from the Nigerian National Petroleum Company Limited (NNPCLtd), N4.39 trillion ($9.7 billion) was spent on petrol subsidy last year, an expense the government had blamed for dwindling public finances.

This year, the government did not provide a budgetary vote beyond June. Ahmed’s disclosure of a shift of the subsidy date will, however, mean an extra-budgetary expense for the government. With the budget suffering from a huge deficit already and revenue generation hit by shortfall in oil production, there is the fear government might have to resort to borrowing once again to sustain the subsidy regime.

NNPCLtd. did not remit funds to Federal accounts last year, its data showed, leaving a hole in public finances at a time when the government was warning that low revenues and large deficits left it unable to stimulate the economy.

Nigeria’s decision to push the subsidy removal date forward will be bad news to institutions like the World Bank and International Monetary Fund, as well as to many Nigerian economic analysts who had warned the Federal government of the dangers of continuing with the oil subsidy option, saying it is robbing the country of funds that could be spent on infrastructural development.

Successive governments in Nigeria had attempted but failed to remove or reduce the subsidy, which has become a politically sensitive issue.

Nigeria imports nearly all its refined petroleum products because local refineries had broken down due to years of neglect.

Oil production volume also dropped due to crude theft and pipeline vandalism, which has left Nigeria spending more on fuel imports than it is getting from crude oil production.

Not unaware of the political sensitivity of the subsidy issue, the Federal government now seems willing to further footdrag on subsidy removal.

Ahmed said that while the NEC had once agreed that the subsidy must be removed earlier rather than later because it was not sustainable and affordable anymore, government must do it in such a way that the impact would be mitigated on the lives of ordinary Nigerians.






     

     

    She said, “So, this will require looking at alternatives to the fuel subsidy that needs to be planned for and subsequently put in place. We also have to look at what needs to be done to support the people that will be most affected as a result of the removal.”

    Ahmed added that the Federal government would be working together with representatives of the states between now and June 2023 on the matter.

    “We have a plan that we will start working on, putting the building blocks towards the eventual removal of the first subsidy.

    “And if I may remind this forum that the budget for 2023 has a provision for fuel subsidy only up to June 2023, and also the Petroleum Industry Act has a provision that requires that all petroleum products must be deregulated 18 months after the effective date of the PMS subsidy removal, and that that period is also up to June 2023,” the minister explained.

    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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    1 COMMENT

    1. Hi Harrison Edeh,

      Thanks for your informative article on Nigeria’s decision to suspend the scrapping of petroleum subsidy in June, citing concerns over more borrowings and huge sums expended on debt service.

      Clearly, the government is in a difficult position, as removing the subsidy has been a politically sensitive issue, but continuing it could lead to more borrowing and further strain on the economy.

      Unfortunately, the subsidy has become such a burden on the country’s finances, with N4.39 trillion ($9.7 billion) spent on it last year alone.

      Understandably, institutions like the World Bank and International Monetary Fund are concerned about the government’s decision to push the subsidy removal date forward.

      It is a missed opportunity to invest in infrastructure development.

      However, I appreciate that the government is cautiously working to mitigate the impact on ordinary Nigerians.

      It’s essential to look at alternatives to the fuel subsidy that can be put in place before removal and support for those who will be most affected.

      It’s also concerning that NNPCLtd. Did not remit funds to Federal accounts last year, leaving a hole in public finances when the government was warning that low revenues and large deficits left it unable to stimulate the economy.

      It’s clear that there are many challenges facing Nigeria’s economy, and it will take a coordinated effort from all stakeholders to find a sustainable solution.

      I appreciate your reporting on this complex issue and the insights you have provided.

      Nigeria’s economy is facing significant challenges.

      It will be interesting to see how the government addresses these issues.

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