Benefits of Subsidy Removal, By Yunusa Tanko Abdullahi




The federal government of Nigeria, speaking on expected benefits from subsidy removal, says the new price, with deregulation of the sector, will ensure cost reflective era which will help to improve product availability and attract investment to the sector as marketers will then have increased margin.


In a brief from the Office of the Accountant-General of the Federation (OAGF), the government posits that maintaining the subsidy regime will be a significant drain on the nation’s resources and on the economy. Government has been spending over N1trillion yearly on under recovery/subsidy.


According to the Honourable Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, the removal of subsidy will allow operators the opportunity to recover costs which will in the long run encourage investments and create jobs. 


Speaking on the decision to increase the pump price, she had said: “The decision to increase the pump price was taken in consideration of developments at the international oil market where prices of oil have been recording recoveries and hence the cost of petroleum products would be determined by the vagaries of the international crude oil market. 


“The prices are expected to rise and fall in response to the volatility of demand and supply. In the nearest future, when other market fundamentals would converge to create the desired competitive market space, prices are likely to fall.”


In a summary of subsidy and other cost for premium motor spirit (PMS) from 2016 to 2020, the government, faced with the declining revenue and increased cost of expenditure, had so far paid from fiscal year 2016 to March, 2020 a total subsidy and other costs totalling N2.445 trillion.
On the dwindling profile of revenue over the years, in the fiscal year 2017, revenue performance was only 27 percent. This gradually increased to 52 percent in 2018. The revenue performance from January to August 2020 is 52 percent. This statistics showed that the revenue performances over the years have not been encouraging. 


Despite this sharp drop, government had continued to meet up with associated subsidy payments in excess of Nl trillion in some of the years.
“The continuous payment of subsidy had been a source of concern for government as it is likely nearly continually to manifest inefficiency in resource management and utilisation which only benefits a few in the society. The payment of subsidy cost for PMS could have best been channelled to the development of infrastructure thus significantly reducing the deficit in the financing gap of federal government,” says Ahmed.
Generally, considering the figures of revenue performance from January to August, 2020, it has shown a decreasing trend comparing monthly budgeted revenue and the actual figures. 


“From January it showed just 18 percent of the realisable revenue compared to the monthly budgeted figure. However, it went up to 51 percent in February, 55 percent in March, then went down sharply to 27 percent showing a declining trend as a result of the COVID-19 pandemic. The increase from May to June, 2020 is a marginal one. According to Ahmed, the figure only slightly increased from July to August. Overall, from January to August, it showed only an average performance of 47 percent. 


The resulting effect of this is that government was not able to raise enough revenue to finance its budget. But government, with a view to meeting up its statutory function despite the dwindling revenue profile during this trying period, had been able to meet up with payment of salaries and wages 100 percent for all ministries, departments and agencies (MDAs) in the federal government. 


In the same vein, government had also been able to meet up with the payment of pensions and debt servicing in respect of the period. Cumulatively, January to August, 2020, the fiscal deficit is N3.841 trillion. 

*Abdullahi is Media & Communications Adviser to Finance Minister

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