IMF and N6tr fuel subsidy warning

The vexatious issue of the lingering fuel subsidy on petroleum products was raised at the recent presentation of the International Monetary Fund (IMF) Sub-Saharan Africa Regional Economic Outlook in Abuja recently. At the event, both the Federal Government and the IMF appear to be singing the same tune on the need to remove the subsidy. However, this lingering and often controversial issue needs to be properly evaluated not only from the viewpoint of the government but also from that of other stakeholders such as the Labour Unions and the average Nigerian. Nigerians have largely become suspicious of the “benefits” of any subsidy removal given their past bitter experience when savings from subsidy removals were frittered away in corrupt practices.

Many others are wary of the prescriptions coming from the IMF which alongside the World Bank are regarded as multilateral institutions driven by neoliberal economic policies largely considered damaging to the economies of the developing countries. In the same vein, very few Nigerians trust the Muhammadu Buhari administration in the way they have managed the Nigerian economy especially when the country’s economic fortunes have nosedived significantly since 2015 such that the average Nigerian has become worse off. Moreover, it can be recalled that President Muhammadu Buhari himself, even before he came into Office had repeatedly stated that there is nothing like fuel subsidy and thus that fuel subsidy is a fraud. So, many Nigerians are not sympathetic to this current government cry on the need for the removal of the subsidy on petroleum products.

The presentation by the IMF’s Resident Representative for Nigeria, Mr. Ari Aisen disclosed that fuel subsidy payouts presently average N500 billion monthly and could hit a record N6 trillion mark by the end of 2022. This has put so much pressure on the need for government to borrow in order to finance the subsidy. As at March 2022, according to the Debt Management Office (DMO), total government borrowing stands at a whopping N41.6 trillion. The worrying part of the report is that debt service to revenue ratio which currently stands at over 80 % presently is estimated to become 100 % by year 2026, implying that all government revenues by then would be used just to service its debts. That is scary. Though the Federal Government queried the IMF figure on current debt service to revenue ratio, putting the figure at about 76 % instead, it none-the-less agreed that the situation is scary and needs to be attended to urgently.

Other issues raised at the launch of the IMF report include the need to balance inflation and growth, the efficient management of the country’s foreign exchange, the maximisation of the job-creating and revenue potentials of the non-oil minerals sector and the management of the negative effects of rising global energy and food prices. These are definitely critical areas worthy of attention in enhancing macroeconomic stability in the country. At the heart of all these is need to work towards the removal of oil subsidies in the country.

The battle for the design of an appropriate pricing of petroleum products in Nigeria is an ongoing one. Many have opined that unless this issue is addressed, there would not be any meaningful progress in the efficient delivery of these products to the Nigerian public. These issues have wide ranging implications for the standard of living of the people, the issue of smuggling of products to the neighbouring countries, the issue of the functioning of the local refineries and the efficient operations of the downstream sector, the oil and gas industry in Nigeria.

The condemnation of any government action in the removal of the subsidy have largely come from the Nigeria Labour Congress, the Nigerian Association of Chambers of Commerce, Industry and Agriculture, Academic Staff Union of Universities, Manufacturers Association of Nigeria, Socio-Economic Rights and Accountability Project (SERAP) and the Advocacy for Integrity and Development among many others. The general chorus from all these civil society organisations is uniform which is that the removal should be undertaken with caution.

The basic argument has been that the Federal Government should focus its attention first and foremost in ensuring that local refineries are functional before the fuel subsidy removal can be contemplated. The disturbing aspect of the management of the downstream sector of the country’s oil and gas sector is that government appears to be living in a fool’s paradise. The nation’s refineries have been poorly managed, as they have remained the highest loss-making entities in the NNPC while failing to work despite series of turnaround maintenance programmes for the Warri, Port Harcourt and Kaduna, which to date, have not materialised.

Finally, while the removal of fuel subsidies may be desirable, as indicated in the IMF report and given its impact on the unending borrowing spree of the Federal Government, it should be done in phases to ameliorate the negative consequences it may have on the ordinary Nigerians, particularly the fixed income earners. In addition, it should be removed when the local refineries would be in a position to operate efficiently. The continuing importation of fuel worsens the actual burden on both the government and the general populace in relation to this vexatious fuel subsidy issue. Government would need to engage all relevant stakeholders in order to bring a desirable closure on this recurring issue.