Removing Fuel Subsidies: As World Bank Joins Conversation On Appropriate Workarounds
Time is running out for the implementation of the policy of eliminating fuel subsidies. Economists say that unless the subsidy regime is ended, the Nigerian economy could collapse; organized labor describes planned politics as a recipe for misery; while the World Bank insists on the sincerity of the federal government in its choice and the implementation of palliative programs will save the situation, reports Festus Akanbi
As the federal government continues to pitch its stories of the urgent need to end fuel subsidies, union members appear to have returned to their trenches, making plans to call their members into what promises to be a long battle. to resist the rise in fuel prices in 2022.
As the government claims to be doing everything in its power to avoid a clash between the government and the workers, some economists, who advocated an end to the subsidy regime, have once again questioned whether the current administration has the balls. to end a subsidy scheme that has turned out to be a cesspool of corruption.
Some observers have even argued that the concern is not really the removal of subsidies but that some Nigerians do not trust the government when it comes to implementing the palliatives that are being faced. They argued that given the storm of criticism over the management of the local school feeding program and the conditional cash transfer policies of the federal government, it will be difficult to convince Nigerians that the post-subsidy era will usher in transparency in distribution of palliative care.
Organized work spits fire
In its rejection of the federal government’s plans to raise the price of gasoline at the pump, the Nigeria Labor Congress (NLC) called for a review of options to help the country achieve development governance and leadership. responsible.
A statement signed by NLC Chairman Ayuba Wabba said the union questioned the federal government’s bait to pay N5,000 to 40 million Nigerians as a stopgap to cushion the effect of the astronomical increase the price of oil, calling it comical.
According to him, the group’s chief executive, the Nigerian National Petroleum Corporation (NNPC), Malam Mele Kyari, has announced that gasoline could cost up to N 340 from February 2022.
He said the total amount involved in what he called the “queer initiative” was far greater than the money the government claims to be spending now on fuel subsidies. Therefore, the NLC says it is already mobilizing the Nigerian workforce for an industrial crisis if its plan to remove the subsidy is to go ahead.
Some analysts believe that the increase in the price of gasoline of more than 200% is a perfect recipe for an aggravated pile of hyperinflation and astronomical rise in the price of goods and services with more difficulties for Nigerians. . This scenario, it is feared, will open a wide door to social consequences such as the degeneration of the current insecurity crises.
The World Bank story
However, the World Bank has estimated that what the government should do is put a human face on the choice of remedial measures put in place to cushion the effect of the higher cost of fuel when subsidies are removed.
In what looks like a new dimension of the subsidy debate, World Bank Country Director for Nigeria Shubham Chaudhuri said time is running out for the Nigerian economy and the situation is far worse than it has been. many Nigerians could imagine. He argued, however, that Nigerians will start to trust their government in the crusade against fuel subsidies if they start living by example.
Chaudhuri, who spoke during an official visit to THISDAY’s office in Ikoyi last week sounded the alarm: âThe urgency for reform has remained, but what we are saying now is that the pressures of oil subsidies are set to hit Nigeria very hard next year, unless they are addressed almost immediately. As of last month, the cost of oil subsidies to the federation, meaning both the federal government and the states, was 250 billion naira per month.
In an interview published in THISDAY last week, Chaudhuri put the issue of subsidy removal in a clearer perspective.
âSuppose you say that the federation’s gross revenues next year (if oil production picks up) could be somewhere in the range of N12 trillion. That 250 billion naira per month means 3 trillion naira over the next 12 months, which means that the federation will essentially spend 25 percent of all federation revenues on premium alcohol subsidies (PMS). . And then, it is the choice of the federation obviously, but is it an informed choice and does the public know exactly who benefits from this N3 trillion or who will benefit from this N3 trillion? And our concern is that if there is no action taken on the PMS grant, there is a risk that the federation’s revenues in 2022 will actually be lower in ordinary terms, not only compared to 2021, but by compared to 2020, which, as you know, was a difficult year, âsaid the head of the World Bank.
So the question is, what happens when the income is depleted further? The World Bank official said it would become very difficult to pay wages and salaries, a development that will dramatically lower the cost of living.
Chaudhuri further explained, âSo if the federation’s income decreases further in nominal terms, it means that wages and salaries will be negatively affected and the cost of everything will increase, due to high inflation. While if incomes decline in nominal terms, one of two things will happen: either the government, both at the federal level and more importantly, at the state level, will start having problems paying wages, making payments to vendors, financing basic services, which is basically what happened in 2015 and 2016, when there was a fiscal crisis at the subnational level. But you might also see this happening at the federal level, as federal government revenue will be hit hard next year if the PMS subsidy continues and most importantly, if oil production does not pick up as much as is currently projected in. the budget.
Implementation of palliative care programs
He said that should not be the case as he suggested that the funds for the PMS grant should be directed towards things like basic education, primary health care, rural roads or things that Nigeria has needs to develop inclusively and reach its potential.
As the debate progressed, some analysts said there was not enough evidence to convince Nigerians the government would do as promised, arguing that N5000 largesse to some needy Nigerians could end up in the pockets. politicians. There is also the fear that by the time Nigerians are forced to pay the full cost of fuel, in a period of rising cooking gas prices and rising electricity tariffs, the level of misery d An average Nigeria would have grown considerably.
Chaudhuri said the Petroleum Industry Act (PIA) categorically states that fuel subsidies are to be removed six months after it is passed, explaining that according to the PIA, fuel subsidies are expected to be removed around February 15. However, it will not exclude the possibility of a delay in the date of implementation of the policy.
He said, âThe fact that people are talking about June already tells you that this is something everyone is hesitant about. If you trust the wording of the PIA, it is written six months after its promulgation. I believe it was passed on August 16. It would be good if the provisions of the PIA were implemented and the PMS subsidy disappeared completely. “
Inflation damping effects
The World Bank official is of the opinion that “when the PMS subsidy wears off there will be a rise in inflation and what we think other countries have done is help ordinary Nigerians cope with it. this new rise in inflation, which is why we believe that under the removal of the PMS subsidy, the large-scale money transfer program is limited in time, to help ordinary Nigerians cope at any price increase beyond what they already know.
According to him, some Nigerians are against the removal of the subsidies because they believe that the fuel subsidies are the only thing they could benefit from the administration. âMany Nigerians know that there is a PMS subsidy and therefore the prices of PMS are a little lower than they otherwise should be. They feel that is the only benefit they get from the government. And if that is taken away, things will be worse. We’re trying to argue that it doesn’t have to be that way. There are many ways to use these funds to directly benefit ordinary people. This is because at present, with 3 trillion naira, it mainly benefits the rich and the very rich. “
On what needs to be done to rekindle the hopes of Nigerians at this critical time, the head of the World Bank stressed the need for the government’s commitment to assure the Nigerian people that as the PMS grant is phased out, they will also help to cushion the effects by protecting them. of the impact of this deletion. This, he says, will be done by doing more than the large-scale money transfer already promised.