With about a few weeks to hand over the reins of power to the incoming government, the United States of America has implored President Muhammadu Buhari to remove the controversial fuel subsidy before bowing out of office on May 29, 2023. The Buhari administration had recently vowed to remove the controversial petrol subsidy before the end of the current Federal Government.
Minister of Finance, Budget and National Planning, Zainab Ahmed, who stated this, attributed the delay in removal of the subsidy, as provided for in the Petroleum Industry Act 2021, to the 2023 general elections and the forthcoming national population census. Speaking through its outgoing Ambassador to Nigeria, Mary Beth Leonard, the American government charged Buhari, who said he was in a hurry to leave office, to complete the unfinished job of fuel subsidy removal.
She expressed hope that even as the president is preparing to leave, there are still a few more things he could do, among which she mentioned the urgent need to remove fuel subsidies. Last month, the International Monetary Fund also urged the Nigerian government to deliver on its commitment to remove fuel subsidies by mid-2023.
The Washington-based lender in a report titled ‘IMF Executive Board Concludes 2022 Article IV Consultation with Nigeria’, said Nigeria’s economy has recouped the output losses sustained during the COVID-19 pandemic supported by favourable oil prices and buoyant consumption activities.
“LOOKING AHEAD, THE IMF RECOMMENDED DECISIVE FISCAL AND MONETARY TIGHTENING TO SECURE MACROECONOMIC STABILITY, COMBINED WITH STRUCTURAL REFORMS TO IMPROVE GOVERNANCE, STRENGTHEN THE AGRICULTURAL SECTOR, AND BOOST INCLUSIVE, SUSTAINABLE GROWTH””
The IMF said the directors highlighted the need for bold fiscal reforms to create needed policy space, put public debt on sound footing, and reduce vulnerabilities. “They urged the authorities to deliver on their commitment to remove fuel subsidies by mid-2023, and to increase well-targeted social spending.” Despite rising oil prices, the IMF said, the government’s fiscal deficit is estimated to have widened further in 2022, mainly due to high fuel subsidy costs. It explained that while the current account is estimated to have improved in 2022, foreign currency reserves declined amidst capital outflow pressures.
The report noted that Nigeria’s Gross domestic product adjusted for inflation has already reached its pre-crisis level and the third quarter of 2022 marked the eighth consecutive quarter of positive growth despite continued challenges in the oil sector. It said the oil sector faces downside risks from possible production and price volatility, while climate-related natural disasters like floods pose the same risks to agricultural production. “In the medium term, there are upside risks from a potentially stronger reform momentum and a larger-than-expected rebound in oil and gas production,” it said.
The IMF said its directors welcomed the broadening of Nigeria’s economic recovery but noted that the opportunity to reap the benefits from higher global oil prices was missed. “They underscored near-term downside risks arising from elevated inflation, high debt-servicing costs, external sector pressures, and oil sector volatility,” the IMF said. Looking ahead, the IMF recommended decisive fiscal and monetary tightening to secure macroeconomic stability, combined with structural reforms to improve governance, strengthen the agricultural sector, and boost inclusive, sustainable growth. It further highlighted the need for bold fiscal reforms to create needed policy space, put public debt on sound footing, and reduce vulnerabilities.
The Federal Government has said it is unwilling to inflict an additional burden on Nigerians as a major reason for the decision to suspend its petrol subsidy removal. However, understanding how countries in similar situations had solved the fuel subsidy problem may provide lessons for Nigeria. Analysis of studies conducted by the IMF and the non-profit, Governance and Social Development Resource Centre, sheds light on strategies used by over a dozen countries to lessen the pain of subsidy removal which includes research.
Some countries have succeeded in convincing their people that subsidies are harmful using independent research and proactive communication. We also note that countries that have successfully removed petrol subsidies embarked on public campaigns to educate the people. Several governments that have tried to remove fuel subsidies in their respective countries have always aimed at protecting low-income households. Other strategies include public trust, phased approaches, international and domestic pressure, and coherence in reform policy.
We agree with the President that petrol subsidy is not sustainable because it is a major factor in the current fiscal crisis that we are facing as a country. It is also a major platform for corruption. But the removal has been scheduled for when the present administration would have left office, perhaps deliberately. It is a matter that the succeeding administration of Bola Tinubu will have to grapple with in the most sensitive manner. The strategy and timing should be appropriate, especially in light of the potential shocks on the citizens.
Perhaps, a programmed removal would be ideal. The Premium Motor Spirit, popularly called petrol, ought to have been deregulated a long time ago because people are buying fuel at a higher rate in some places, more than the official price fixed by the Federal Government. The Federal Government said it spent about N1.59 trillion on fuel subsidies from January to June 2022. This humongous amount would have made a huge difference if it were channeled to critical sectors like health, education and infrastructure.
Clearly, the issue of fuel subsidy removal is something that should have been done a long time ago. Diesel, which has been deregulated, is an area that requires subsidy due to its importance to the entire economy, unlike petrol, which benefits a small segment of the population more. A lot of Nigerians look forward to the implementation of the fuel subsidy removal and release of money for the provision of infrastructure. The incoming administration would have to grapple with profound fiscal headwinds given the ominous fiscal outlook for 2023. With the general elections over, it is important for the winners to manage expectations. Tough policy choices will have to be made to reset the dwindling Nigerian economy.
