Subsidy Removal: Concerns of transparency, inclusivity over $800m palliative disbursement

AS the Federal Government prepares to disburse the sum of $800 million to most vulnerable Nigerians as a palliative to cushion agonies expected to arise from the planned removal of petroleum subsidy, there are wide misgivings of transparency and inclusivity on the ‘pro-poor’ register being drawn up to run the exercise.

There are also concerns on repayments by beneficiaries of loans disbursed to the low and middle income earners by the Federal government, the $800 million palliative itself being a loan from the World Bank

The concern followed previous interventionist programmes of the Federal government like N-Power, Trader Moni, and Market Moni, which failed some transparency tests and were unable to prune the estimated number of 133 million people in multidimensional poverty.

BusinessDay quoted the Minister of Humanitarian Affairs and Disaster Management, Sadiya Farouq, as, in an interaction with the media on February 18, raising her concern about loan repayment issues regarding some federal government’s interventionist programmes.

“The government was yet to recover any money from the beneficiaries of the previous disbursements to the TraderMoni, three years after disbursement,” BusinessDay qouted Farouq as saying.

TraderMoni is one of such interventionist interest-free loan facilities given to traders under the Government Enterprises and Empowerment Programme (GEEP), which started in 2018, shortly before the 2019 general elections.

Further concerns on transparency were raised when the government was accused of expending N500 million on school feeding during the Covid-19 lockdown, a situation that did not go down well with many accountability watchers.

Critics are worried that the constitution and formation of the pro-poor register that will list beneficiaries of the new $800 million loan does not define categorically what constitutes a poor Nigerian and proper geo-political spread.

They insist the government needs to explain more its plans, policies and programmes clearly before commencement of the palliative disbursement.

The minister of Finance and National Planning, Zainab Ahmed, who had confirmed the disbursement plan to journalists on April 5, 2023, said the government would stop subsidy on petroleum payment in June, adding that plans were being finalised with the Presidential Transition Council (PTC) on it.

The Federal government has already budgeted N3.35 trillion for the first half of 2023, with no subsidy vote for the rest of the year, confirming its resolve to end subsidy payments in June.

In 2022, subsidy cost the government the sum of N3.3 trillion in 11 months alone, the sum eating deep into the country’s infrastructure fund and other developmental projects.

This development does not sit down well with economic watchers, with even the World Bank maintaining its stance that the subsidy only benefits 3 per cent of Nigerians.

“The concern raised by the World Bank is in order. If you look at it objectively, trillions of naira spent on subsidy can solve Nigeria’s infrastructure problems and lessen our borrowings to fund the budget deficit,” a former chairman of the Major Oil Marketers Association of Nigerian (MOMAN), Adetunji Oyebanji, told The ICIR.

MOMAN Adetunji Oyebanji
Oyebanji believes subsidy funds can help Nigeriaʼs infrastructure facelift

Against this backdrop, Ahmed confirmed that engagements with the PTC and the incoming administration had been initiated.

She informed that the $800 million received from the World Bank would be disbursed to 10 million households considered to be most vulnerable, to cushion the effects of the subsidy removal.

“This is a commitment in the Petroleum Industry Act (PIA). There’s a provision that says that 18 months after the effectiveness of the PIA, all petroleum products must be deregulated. That 18 months takes us to June 2023,” she said.

The minister noted that the 2023 medium-term expenditure framework and the Appropriation Act made necessary provisions to facilitate fuel subsidy exit by June 2023.

She said, “We are on course; we’re having different stakeholder engagements. We’ve secured some funding from the World Bank. That is the first tranche of palliatives that will enable us give cash transfers to the most vulnerable in our society that have now been registered in a national social register.

“Today, that register has a list of 10 million households. Ten million households is equivalent to about 50 million Nigerians.”

Beyond the cash transfer, the minister noted that the government was working to include transport palliatives to ameliorate possible rise in cost in that area.

The $800 million loan from World Bank

A document sighted by The ICIR showed that the facility as a loan has a credit number 7019-NG. The financing agreement, according to the document, was signed on August 16, 2022 between the Federal Republic of Nigeria (Recipient) and International Development Association (IDA) of the World Bank.

The loan, a concessionary facility, has 1.65 per cent as the principal amount of credit repayable from January 15, 2027 to July 15, 2046. Another payment date for the loan is from January 15, 2047 to July 15, 2051. Within this period, the repayment per cent is 3.40 per cent of the principal amount.

According to the document, the sum of $565.3 million has been released so far to the federal government, as the first tranche of payment.

Ahmed signed on behalf of the Federal Republic of Nigeria, while the World Bank’s Nigeria Country Director, Shubham Chaudhuri, signed on behalf of the IDA.

Under the project description,  the objectives of the payment are to “expand coverage of shock response and safety net support among the poor and vulnerable”, and also “strengthen the recipients’ national safety net delivery system.”

According to the signed documents, the implementation arrangements comprise federal and state levels.

The federal aimplementation institutions include the National Steering Committee, National Safety Nets Coordinating Office, and the National Cash Transfer Office.

On the state level, the document listed states’ steering committees, states’ operations coordination units, states’ cash transfer units, independent verification of output-based financing, and targeted transfer.

A development economist, Kelvin Emmanuel, in a chat with The ICIR, said of the loan, “That the loan was given as a facility for the Federal government to provide palliative for 10 million households in the National Social Register is proof that we do not understand what ‘poverty’ really is and how to solve it in Nigeria.”

Emmanuel pointed out that the price of petrol going up 401 per cent without domestic refining and 297 per cent if the 27 per cent handling charge is taken off would place a financial burden on Nigerians, for which handing out “stipends” as conditional cash transfer is not the solution.

“And this is because despite the disbursement of over N2 trilllion over the last eight years, the per capita income of Nigerians has dropped 48.5 per cent, with the United Nations estimation of hunger rate at 13 per cent, and a projected 24.2 million Nigerians projected to be exposed to food insecurity,” he added. 

Worries over rising debts and transparency of ‘pro-poor’ register

Some analysts are worried that the new $800 million World Bank loan would worsen Nigeria’s debt burden, with the country currently showing weak repayment capacity.

“The government is struggling to cover N11.5 trillion in deficits for the 2023 budget. Yet, it’s collecting $800 million from the World Bank to fund palliative for removal of subsidy through conditional cash transfer to 10 million households,” the economist, Emmanuel, said.

Emmanuel: loan will worsen Nigeria’s debt problem

A development expert, Olawale Salami, expressed reservations on the impact of previous interventionist programmes of the Federal government.

Salami expressed a fear that the conditional cash transfer would likely go the way of N-Power and other similar intervention schemes.

He said, “UNESCO recommended 15-20 per cent of government budget on education. Africa Union countries agreed that recommendation on health allocation is 15 per cent of Government budget. Another $800 million is about to be wasted on cash transfer the same way N1 trillion was wasted on N-Power and other intervention schemes.”

Salami stressed that “investments in social overhead capital (education, healthcare, electricity) would sour and make private investment easier to expand.”

Citing country experience, he noted, “Israel has one of the highest per capita of scientists and doctorate degree holders,” sayng that these professionals provide talents for highly skilled technology industry for wealth creation.

To an associate consultant with the British Department for International Development (DFID), Celestine Okeke, the weak link in the $800 million palliative disbursement is the absence of a proper exit plan and integration into economic policies of the government for proper wealth creation.

Okeke believes palliatives must create pathway to economic prosperity

Okeke said, “This is more like a knee-jerk approach and lacking in proper exit plan. We witnessd this in N-Power and Trader Moni. Despite these interventions, we still have high unemployment rate inching to almost 40 per cent.”




     

     

    Another economist, Olumide Adesina, also has his doubts about the palliative register, saying it is likely to be weakened by political interference.

    “The problem with this measure is that just a quarter of Nigerian citizens have BVN (56.4 million).The most vulnerable Nigerians can’t be captured, and the e-naira could have helped, but not many Nigerians are there,” Adesina said.

    Mohammed Adamu, a footwear dealer in Kubwa, the Federal Capital Territory, was emphatic he did not trust the proposed palliative distribution project.

    “I keep wondering how they identify the most vulnerable and low income citizens of the country. We seem not to have learnt anything. Is it the same politicians that hoarded palliatives that would share the $800 million?” Adamu asked.

    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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