The governments of Saudi Arabia and Malaysia are tapping into savings from fiscal prudence or excess earnings from crude oil to protect their vulnerable citizens from harsh economic realities. But this is not the case with Nigeria.
Africa’s biggest oil producing country is struggling to fund its yearly budget, or even fund an opaque subsidy scheme to avoid a backlash from households dealing with poverty and inflation, a development that has fuelled extreme hunger with over 95.9 million people living in extreme poverty.
Unlike Nigeria, Saudi Arabia and Malaysia are using life-after-oil funds to protect its vulnerable citizens by setting a price ceiling for domestic petrol prices as the two governments accept to bear any extra cost caused by rallying oil prices.
For Saudi Arabia, the decision was made to “decrease the burden of living costs on citizens and residents” and “support local economic activity,” according to a statement carried by state-run Saudi Press Agency.
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Fuel prices will be capped at $0.58 per litre for the 91 octane grade, and at $0.62 per litre for the 95 octane variety, a state committee for amending energy prices said in the statement.
It added that the prices would continue to be reviewed and adjusted monthly in accordance with global prices, but the government would bear the costs of any rise above the new ceiling, the statement said.
Most analysts say the change will blunt the impact of subsidy reforms introduced by Crown Prince Mohammad bin Salman and is a nod to complaints from Saudis about the rising cost of living under his economic diversification programme.
Inflation in the world’s largest oil exporter stood at 5.7 percent in May – the latest figure available – driven by higher food and vehicle prices as well as a move to triple the value-added tax last year.
“One way to read the fuel price cap is that the government expects oil prices to rise further. The Citizens Account has been adjusted to account for higher oil prices,” John Defterious, a Riyadh-based economist, tweeted on Wednesday.
The Citizens Account was established in late-2017, as a means-test monthly cash transfer programme to protect vulnerable Saudi families from the financial impact of the government’s economic reforms, including raising fuel prices, rather than using subsidies.
It has paid out more than $25 billion since its launch, but the roll-out has been tailored more for capital projects rather than energy subsidy.
Apart from Saudi Arabia, Malaysia’s government has enacted a new emergency law allowing it to use funds derived from oil and gas contributions to pay for vaccine procurement, as it looks to ramp up its COVID-19 vaccination programme.
The ordinance will allow the government access to use the $4.23 billion parked under the national trust fund to secure vaccines “for an epidemic of any infection disease,” according to the law published in the federal gazette.
The trust fund, which takes contributions from state energy company Petronas and others involved in petroleum exploitation, was set up to support infrastructure and other development and provides federal loans to Malaysia’s states.
Malaysia also re-introduced fuel ceiling for petrol to help cushion current crude oil prices from having an adverse effect on the country’s citizens.
Malaysia’s ministry of finance said the government would cover the difference between the actual market price and the weekly retail price that is set weekly through the subsidy allocation
“The price for RON95 petrol and diesel has been capped at RM2.05 and RM2.15 per litre respectively, following the rise of global crude oil prices which will remain unchanged for August 19 to 25 period,” a statement from Malaysia’s finance minister Tengku Zafrul said.
Zafrul said the government decided to introduce the cap because the actual market price for petroleum had been rising, along with the demand for crude oil, which is fuelled by the reopening of various economic sectors in the world.
He noted that prices would now be set based on the weekly retail prices of petroleum products using the Automatic Pricing Mechanism (APM).
“The government would continue to monitor the effects of changes in world crude oil prices and take appropriate measures to protect the welfare and well-being of the people,” Zafrul said in a statement seen by BusinessDay.
For countries like Saudi Arabia and Malaysia, subsidies are a temporary policy tool to correct market imperfections when competitive, private markets fail to deliver socially desirable outcomes.
These two countries have run successful economies and also learned not to put all their efforts into one basket by intensifying plans for life beyond crude oil.
For Nigeria, the narration is different, policy missteps, wasteful spending and an inability to diversify away from petrol dollars or build a life after oil plan have restricted the country’s economy from attaining its full potential and have rendered it fully susceptible to the renowned “resource curse”.
“Saudi Arabia and Malaysia can afford to ease energy costs or buy vaccines for its citizens because they are oil rich, Nigeria is bankrupt,” a professor of economics and former president of the Nigerian Association for Energy Economics (NAEE), Wummi Iledare, said.
In presentations to Federation Account and Allocation Committee (FAAC) meetings seen by BusinessDay, NNPC deducted N608.8 billion from remittance to the Federation Account in the first half of 2021.
This development means more struggles for Nigeria’s finances most, especially the ability of the three tiers of government to meet their various constitutional obligations.
Although the government recently signed the Petroleum Industry Bill (PIB) into law, statements from Nigeria’s economic managers show Nigerians may live longer with the painful subsidy era as oil price steady near $71 after a two day rally.
Brent crude was up 22 cents, or 0.3percent, to $71.27 a barrel as of Wednesday, August 25, 2021.
The subsidy is not just in the petroleum sector; the government also pays N30 billion monthly subsidies in the electricity sector to close liquidity shortfalls, despite its privatisation since 2013.
Currently, the government also plans to borrow about N4.89 trillion from internal and external sources to finance the deficit in its proposed 2022 budget of N13.98 trillion due to dwindling revenue.
“Nigeria has absolutely nothing to fall back on, yet it acts as if it is a rich country,” Luqman Agboola, head of research at Sofidam Capital, said.
