Don’t Be Frivolous In Spending Savings From Fuel Subsidy Removal, Rewane Warns Govt

The Federation Account Allocation Committee (FAAC) may share up to N1.2trn as monthly allocation to the federal, states and local governments from fuel subsidy removal proceeds and sale of foreign exchange by July, but Nigerians may revolt if the funds are not properly managed to alleviate their sufferings, the Chief Executive Officer of Financial Derivatives Company Ltd, Bismarck Jemide Rewane has said.

In May, a total of N655.9bn was shared by FAAC from April revenue.

For eight years, the immediate past Nigerian President, Muhammadu Buhari ignored two consequential decisions: fuel subsidy removal and the multiple foreign exchange windows. This was detrimental to the Nigerian economy, experts like the Chief Executive Officer of the Centre for the Promotion of Private Enterprise and former Lagos Chamber of Commerce and Industry, Muda Yusuf, repeatedly said.

When President Bola Tinubu assumed duty, he first removed fuel subsidy and on the 16th of June unified the exchange rate market at the Investors’ and Exporters’ window.

Fuel subsidy gulped over N400bn monthly while the different foreign exchange windows allowed a wide gap between the official rate and the black market controlled by Bureau de Change dealers.

Under Buhari, the CBN pegged naira around N460 to the dollar while the black market traded around N760, leaving an attractive room for round tripping.

Described by economists as ‘bad’, the FX policy led to the collapse of liquidity in the foreign exchange market resulting in acute scarcity.

With the subsidy removal, Premium Motor Spirit now sells for N520 and N550 per litre while naira is officially priced at N663.4 at the I&E window. The price now depends of the market.

Rewane said in a monitored interview on Arise, “Policy one is removal, reduction of fuel subsidy which increases the government revenue but it also takes money from the pockets of the people. The money you would have used to buy additional petrol now goes to the government.

“Policy two is that you are now buying foreign exchange at a higher rate so, you need more naira. now three is that you will either take money from your savings account to the government to give you dollars or you are going to borrow money.

“I head the president say we must remove subsidy, we must unify the exchange rate, that we must have a lower interest rate. You cannot have a lower interest rate and strong currency simultaneously.

“Let me tell you what the two impact is. One, using a normal regression model will tell you that if by increasing the petrol price from N200 or so to N511, if the FAAC that was shared last month was about N712bn, and because the NNPC has more money to give to the dollar equivalent to the Nigerian government.

“Converting it not at N461 but at N751 our projection shows that the FAAC (Federal Account Allocation Committee) to go up from N710bn or N720bn to about N1.1trn to N1.2trn next month.”

Rewane explained that the decision has a huge impact on the earnings of Nigerians but for the government, revenues would surge.

For the economist, the citizens who are bearing the heat of the policies would expect the proceeds to be used to alleviate the suffering inflicted on them by the removal of subsidy and floating of the naira.

KPMG Nigeria projected that the fuel subsidy removal will likely push the inflation rate to 30 per cent in June 2023. Inflation rose marginally to 22.41 per cent May, 2023 before subsidy removal and floating of naira.

He said, “So, the question is that if all the governments in the country got only N710bn last month and now get N1.2trn this month, what are they going to do with the N1.2trn to have an effect on the welfare of the people?

“So, is this just a raid to take money from the people and use it to run the government or is it for the deal in which people are paying and the government is giving in return quality services since the government is the servant of the people?

“The government has more money; the people have less money but their expectations are higher. The good news is that because people are spending less on their consumption, their tolerance level will be limited. Now the government has to deliver to the people in terms of output, infrastructure, education, health, and others.

“If people (government officials) go there sharing spoils and looking for goodies for themselves, then these people that are paying the money, these people that are suffering will not take it for too long. The picture is very clear, you must deliver welfare to the people because if you don’t make it possible, then the people will push back.”