Subsidy removal: Govt, citizens must agree – World Bank

The Nigerian government and the citizens must agree on the removal of petrol subsidy that will cost Nigeria over N3 trillion by the end of 2021, World Bank Country Director for Nigeria, Shubham Chaudhuri has said.

Nigeria’s rising fiscal deficit is yet another sign of the country’s ailing finances and makes a mockery of Abuja’s insistence to continue with a wasteful petrol subsidy regime that gulps over a trillion naira per annum among other overly expensive ventures of a cash-strapped government.

To solve this, Chaudhuri said “there has to be a consensus within and among the political elites which he insists is the main reason Nigeria has not achieved its potential as Africa’s biggest economy.

“There has been no consensus agreement between the elites and everyone else on how best to solve this subsidy problem,” Chaudhuri said during a visit to BusinessDay’s corporate office in Lagos on Tuesday.

He called on the Nigerian government to consider the opportunity cost of its continued fuel subsidy and decide whether to end the policy completely or maintain the drain on its scarce resources.

Read Also: Nigeria’s N3trn petrol subsidy widens deficit Eurobond can’t fund

“People are aware of the social risk of civil unrest attached to the removal of subsidy,” Chaudhuri said.

He added, “other countries have gone through risks as well. They trade-off some choices. What we have said is, again on this, there is need for agreement and recognition”.

According to Chaudhuri, “how this is communicated, stakeholders engagement, and finding a way of restoring trust deficit is important.”

BusinessDay calculations showed Nigeria’s petrol subsidy projected to hit N3 trillion based on current market realities is 46 percent higher than the N1.6 trillion ($4 billion) the government raised through a Eurobond in September.

“Nigeria’s fiscal position is deteriorating, resulting in higher debt and less space for investments in human capital and infrastructure,” the World Bank said.

Data from the Central Bank of Nigeria (CBN) showed that the Federal Government’s fiscal deficit hit N2.4 trillion in the first quarter of 2021, up from N1.6 trillion in the fourth quarter of 2020 and N1.4 trillion in the first quarter of 2020. That is after the government kept up with its expenditure plans, but fell way short of its revenue projection.

Also, World Bank’s data showed cost of petrol subsidy is at a six-year high from N107 billion in 2020 to N864 billion between January and September 2021, significantly reducing fiscal space for social spending,

In 2022, the federal government plans to spend N3, 000 per person on health. In 2022, the petrol subsidy could cost N13, 000 per person, the World Bank said in its latest report.

The UN Children’s Fund (UNICEF) says Nigeria’s 13.2 million out-of-school children is the world’s highest. But the cost of subsidising petrol is 10 times larger than the entire 2021 budget of N94.4 billion meant to pay for free Universal Basic Education.

The global bank raised concerns that the subsidy mostly benefits the rich and those who smuggle petrol to neighbouring countries.

Consequently, it recommended that the N3 trillion recovered revenue should be redirected immediately to deliver N600 billion in cash support to the people over six months.

The World Bank also recommended that part of the money should be set aside for development priorities at all levels of government, including local government area development funds, state development funds, and national priority programmes.

The bank also advised the Nigerian government to allocate N850 billion to national priority programmes for security, interstate connectivity and power sector recovery.

According to the bank, N800 billion needs to be set aside for state development funds, which should be spent on basic education, rural roads, and industrial zones, while N774 billion should be kept for local government development funds for primary healthcare, water and sanitation , and community development.

Chaudhuri said 20 million Nigerians comprising 10 million each from the national and local can benefit from N5,000 per month cash for the people in six months.

Nigeria is the only country in the world that subsidizes only petrol, the cost of which is massive and unsustainable; as a result, Nigeria is sacrificing critical investments in physical and human capital.

The report said 40 percent of the poorest consume less than 3 percent of the total PMS consumption in Nigeria, adding that by creating a large price differential between Nigeria and its neighbours, the PMS subsidy is incentivizing smuggling.

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