The National Assembly on Thursday passed amendments to the 2022 Appropriation Act and 2022 Fiscal Framework, which raised the deficit in the Federal Government’s budget by N965.42bn, to N7.35tn; and subsidy on Premium Motor Spirit (petrol) by N442.72bn, from N3.557tn to N4tn.
The Senate and the House of Representatives considered and adopted reports on the amendment bills based on the request by the President, Major General Muhammadu Buhari (retd.).
The federal parliament approved a new oil price benchmark of $73 per barrel, a new oil production volume of 1.600 million per day, and a PMS subsidy of N4tn.
However, in swift reactions, economists and the Manufacturers Association of Nigeria warned the President that the N4tn subsidy would worsen the economic situation of the country and adversely affect individuals and companies.
But the organised labour commended the Federal Government.
Speaking to newsmen in separate interviews.
The President of MAN, Mansur Ahmed, said petrol subsidy was a yoke on the Nigerian economy, arguing that placing much importance on petrol over issues of health and infrastructure was misdirected.
“We believe that subsidy is a yoke on our economy. First of all, the social sector is critical. Maybe people feel that fuel is so important, but if you compare it with health, education and security, you will notice it is nowhere near them.”
He explained that perhaps, there were people benefitting from the subsidy, which makes it difficult to end.
“There are inefficiencies and leakages, but that is because of subsidy. Government should invest that money in infrastructure, health and education. The money will make bigger impact on the economy when invested in those critical areas, but what impact will subsidy make on the economy and what impact has it made so far?” he asked.
An economist and Chief Executive Officer of Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, warned that the new approvals by the legislature would adversely affect the economy.
According to him, the approvals will lead to higher debt service, increase in fiscal deficit, increasing inflationary pressure and even naira depreciation.
He said, “With this development, our macroeconomic outlook in the near term should be a cause for worry. The outcomes of these approvals include increased borrowing, higher debt service, surge in fiscal deficit, heightening inflationary pressure and a risk of further depreciation in the naira exchange rate.”
He added that there would be increase in recurrent expenditure as debt service and fuel subsidy will gulp a significant part of government’s revenue.
He also urged Nigerians to be prepared for more challenging times, as necessary reforms for economic recovery and growth may not happen soon.
Muda said, “Infrastructure budget implementation may be negatively impacted as recurrent expenditure increases sharply. The combination of debt service and fuel subsidy is likely to consume the entire revenue.
“The implications are that we should brace up for more challenging times. There is no quick fix. Major reforms necessary to return the economy to a recovery and growth path are unlikely to happen in the near term. This is coupled with the distractions that come with electioneering and transition periods.”
A former President, Association of National Accountants of Nigeria, Dr. Sam Nzekwe, stated that the government was increasing its projected subsidy spending when it could not tell the actual volume of petrol consumed in Nigeria.
He stated that the funds being channelled for fuel subsidy should be used to solve the concerns in other sectors of the economy.
He said, “That is the quarrel we keep having with the government because for this fuel subsidy, nobody has actually known the actual quantity of fuel that we consume in Nigeria.
He stated, “Instead of cutting down you are increasing. Why are you increasing when you don’t know the actual volume consumed? I know they will say it is because of inflation and some other factors, but we can continue like this.”
Nzekwe added, “This will hit our economy negatively because we have been talking of how to remove subsidy and not to increase it. So this move is not well-thought out. Universities are on strike, they need money and you are increasing fuel subsidy budget, no!”
A professor of Energy Economics at Nnamdi Azikiwe University, Uche Nwogwugwu, condemned the N4tn petrol subsidy, saying that it was a tax on consumption.
He said the amount was enough to subsidise the cost of local refining, noting that channeling Nigeria’s scarce resources to subsidy when issues of funding education, infrastructure and security were on the front burner was a waste of money.
“Nobody knows the basis of the N4trn subsidy. We in energy economics say that any subsidy on petroleum is corruption. A lot of development can be done with N4trn and we can develop alternative energy sources of energy and renewable energy with that amount, to rely less on fossil fuel.”
A development economist, Aliyu Iliyas, decried the poor state of the country, urging the Federal Government to eliminate fuel subsidy.
He said, “Well, the fact remains that the country is in a serious mess as the revenue is very poor; consequently the government has to borrow. However, the government’s borrowing rate is very dangerous.
“If you look at the oil market now, the price of oil has been increasing for some time now but the country isn’t benefiting from it because we are not producing at home. Unfortunately, as the price of oil continues to rise, so also will our subsidy bail out which causes a series of problem. So the best decision is not to borrow to pay for subsidy but to remove it and focus on revamping refineries in the country, in addition to the Dangote refinery that we are waiting for.
“However with the route the government has chosen, it is clear that the economy will suffer and so will the Nigerian people. We should expect inflation to rise in the next few months and development in the country to suffer.”
Reacting to the development, the Lagos Chamber of Commerce and Industry described the decision of the National Assembly to approve more loans for the Federal Government as one that would plunge Nigeria into “double jeopardy.”
According to the LCCI Deputy President, Mr Gabriel Idahosa, historical antecedents have shown that fuel subsidy continues to divert a significant fraction of revenue which can be injected into other aspects of the economy for developmental purposes.
He said, “Fuel subsidy already has a negative effect on the economy. What it means is that useful resources that should go into social services like education, healthcare, roads and other common services that everyone should enjoy, are used to subsidise petrol, of which about 30% is actually not consumed in Nigeria.”
But the Nigeria Labour Congress lauded the Federal Government for not removing the fuel subsidy as earlier threatened.
The Chairman of NLC in Ogun State, Emmanuel Bankole, said the action was commendable.
He said, “It is commendable and shows that the government is responsive and sensitive . But, that has not solved the problem . All our refineries must be made to function.”
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