…Warns That Retention Of Fuel Subsidy Will Wipe Out Capital Expenditure
If the federal government decides to retain the payment of fuel subsidy, which it estimated at N6.72trn in the 2023 fiscal period, then there will be no fund for all Ministries, Department and Agencies of government to spend for execution of capital projects.
The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed gave the warning on Thursday in Abuja during a consultative forum on the 2023-2025 Medium Term Fiscal Framework.
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Oil price hit over $100 per barrel in 14 years, and there are fears in government circles that the country may surpass its monthly fuel subsidy budget.
Experts are of the view that Nigeria may not be able to maximize the benefits or rising oil prices because of the fuel subsidy burden.
As of 2021 when crude oil price averaged $62 per barrel, the federal government spent a whopping sum of N1.2trn subsidizing petrol.
In January, February, March and April of this year, the Nigerian National Petroleum Company Ltd incurred N210.38bn, N219.78bn, N245.77bn and N271.58bn for payment of fuel subsidy respectively, giving a total of N947.51bn during the four-month period.
President Muhammadu Buhari had recently approved an increase in the estimated provision for Premium Motor Spirit subsidy for 2022 by N442.72bn from N3.557trn to N4trn.
The World Bank had last month estimated that the increase in global price of crude oil will push the fuel subsidy budget of the federal government from the current N4trn to about N5trn by the end of this year.
But Ahmed expressed concern that the fuel subsidy regime was hurting Nigeria’s ability to service its debts and meet up with capital expenditure.
The finance minister called on Nigerians to understand that fuel subsidy was causing a massive fiscal burden, saying a situation whereby the federal government borrows for consumption was wasteful.
She said as the 2023 budget process commences, the federal government is faced with two scenarios of either to retain the subsidy payment throughout 2023 which would gulp N6.72trn or retain it till the end of June based on the 18 months extension announced in early July of last year.
Both scenarios, she stated, have serious implications for net accretion to the Federation Account and projected deficit levels
She said, “The projected fiscal outcomes in the medium term are presented under two scenarios based on the underlying budget parameters/assumptions, as follows: Scenario 1 – the Business-as-Usual scenario: This assumes that the subsidy on PMS, estimated at N6.72 trillion for full year 2023, will remain and be fully provided for.
“Scenario 2 – the Reform scenario: This assumes that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case only N3.36trn will be provided for. Additionally, there will be tighter enforcement of the performance management framework for GOEs that will significantly increase operating surplus/dividend remittances in 2023. Both scenarios have implications for net accretion to the Federation Account and projected deficit levels.”
Also speaking, the Minister of State for Budget and Planning, Mr Clem Agba, said the removal of fuel subsidy lies in the hands of Nigerians.
He said, “PMS being sold at N200 is still a big problem, the cost of production in PMS itself in the neighborhood is about N600 to N700 per liter.
“Right now, Nigeria is the only country in the world that is selling at about N165 or N200. If you call your friends or brothers in the states or in Europe or in other African countries, you will know that PMS is currently being sold at the range of N800 to N1000 per liter.
“I think that the time to remove subsidy was yesterday, we are only eating away our future. I find it difficult to understand a situation where citizens say that they want Omelet and when the government wants to bring egg so they can produce Omelet, they say no, don’t bring it yet.
“So, it’s a decision Nigerians will have to agree to it. Because if you look at scenario one, it means that we will not have any capital expenditure next year, there will be no capital expenditure and then taking care of recurring expenditure will be a huge challenge.
“In scenario two where we say let’s take it up to June, it’s means we will only have about N1trn left for capital expenditure. And when you look at our budget over the years, we have tried to ensure that the minimum capital that we spend is about 30 per cent of the budget but this doesn’t meet up to that expectation.
“So, the answer to this really lies in what the citizens wants. Unfortunately, all those who agree with us in-house that we should remove subsidy, all the political parties, governors in the country, the labour unions, NLC, or TUC, when they come out in the public, they will say don’t remove the subsidy, but behind the scene they understand that it has to be done.
“But maybe out of lack of patriotism or in order to promote themselves, or their parties they say it’s the government that wants to punish its citizens. But Nigerians really need to decide if we must have a future then subsidy needs to go now.”