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Between Subsidy Removal And Revenue Leakages

The recent decision of the Federal government to stop the payment of subsidy from 2022 is currently generating a lot of tension amongst citizens of the country. The organized labor sector have warned government to shelve its plan to stop payment of subsidy, this is also followed by recent threats of strike actions and protest by the National Association of Nigerian Students. The last attempt to remove subsidy in 2012 led to a nation- wide protest tagged, “Occupy Nigeria”. Interestingly, the current president and some members of his cabinet and key APC stakeholders were part of the protest which lasted for one week.  The protest degenerated to loss of lives and properties including paralysis of the economy.

The Minister of Finance made the decision to remove subsidy officially known during the presentation of the 2022-2024 Medium Term Expenditure Framework. According to her, the recently signed Petroleum Industry Act favors full deregulation of the downstream sector and as such the federal government would stop the payment of subsidy from 2022. The average amount paid as subsidy monthly amounts to N150 billion naira. According to the Minister, the amount removed as subsidy would be used to support 40 million Nigerians with a stipend of N5000 each.

Beyond the agitation against subsidy removal, the decision to spend the money from subsidy on 40 million Nigerians is not welcomed by majority. The fact that Nigeria is an oil driven economy means that the removal of fuel subsidy has the capacity to affect every other aspect of lively hood. The effect of increase in fuel cost will not only lead to the increased rate of transportation but it will also affect the prices of goods and service, cost of production and general livelihood. The decision is also coming at a time when there is a spike in the prices of food items, with food inflation reaching its peak at 17%. The idea of sharing 5000 naira to Nigerians is not a well thought-out policy. The sharing of stipends did not record much impact under the Conditional Cash Transfer program, Nigeria still remains the poverty capital of the world, with 93.9 percent living below poverty line.

Also the social register that contained the data of poor Nigerians has been faulted; so many poor Nigerians were not captured under the scheme. Secondly subsidy removal would not only affect the poor, it will also affect the middle class who might become poorer if government policy excludes them from the use of the subsidy recovery funds. This is also coupled with the fact that the current inflation rate makes the value of the proposed sum of little or no effect compared to the gains of subsidies on petrol.

Nevertheless, with the shortage of revenue experienced in the country, the decision to remove fuel subsidy is the best economic decision the Federal Government can take at this point. This will to some extent reduce our over reliance on debt to fund key projects. However to cushion the effect of subsidy removal on Nigerians, the FG must block revenue leakages from the subsidy recovery fund.

For the subsidy removal to have massive impact in revamping the economy, the government must allocate the recovered subsidy funds for priority capital projects. Such projects should be project that will lead to the economic advancement of Nigerians. For instance, issuing of soft loans for agricultural projects and SMEs, investments in fertilizers plants, and investments in the agricultural supply chains, will not only boost the economy but will also bring down the prices of food items and boost the value of the naira. The building of refineries and support to manufactures of local products within the local content policy can also cushion the effect.

Projects under the subsidy recovery fund must be void of revenue leakages. Nigerians have expressed their distrust on government’s capacity to manage recovered subsidy funds. To solve the problem of revenue leakages which characterizes government expenditures, the FG must situate expenditure decisions from the recovered fund into the macro-economic framework and planning process of government fiscal policy.

A fiscal strategy paper that contains projects and expenditure from subsidy recovered fund should be prepared with input from sector experts and this should be tagged separately in the budget. The projects should be properly monitored and reported on a quarterly basis. The federal government and the Fiscal Responsibility Commission should play a vital role in the capacity building of sub-national government in whose domain projects from subsidy recovered funds will be channeled.

NASS should utilize this period to quickly amend the Fiscal Responsibility Act to consist of a Council which will be constituted by the Chairman of the Commission and Heads of Fiscal Responsibility bodies at the state level. The Council shall hold meetings to deliberate on issues pertaining to fiscal policy framework and prudent management of the nations resources. This is necessary because most of the subsidy recovery projects shall be domiciled at the states and FCT, the Council shall therefore receive report of implementation of subsidy recovery projects at the state level and this will be used to engage the ministry of Finance in the annual preparation of the MTEF.

Victor Emejuiwe

Good Governance/Public Affairs Analyst


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