With fuel subsidy regime in place, FG, states won’t be able to pay salaries – World Bank

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The World Bank has nudged the federal government into removing petrol subsidy saying it (federal government) and the states would be unable to pay workers’ salaries as from 2022 should the subsidy regime be left in place.

The lead economist, Nigeria Country office of the World Bank, Mr. Marco Antonio Hernandez, stated this at presentation of the November edition of the World Bank Nigeria Development Update (NDU), entitled ‘Time for business unusual’ in yesterday in Abuja.

Hernandez, in the report, urged the federal government to remove subsidy on petrol in February 2022, as prescribed by the Petroleum Industry Act (PIA).

He warned that a further delay could worsen the precarious revenue situation of the government.

The report also warned that the present fiscal condition of the sub-national governments would take a turn for the worse in 2022 with 35 of the 36 states unable to meet their financial obligations.

The World Bank chief noted that a situation where N250 billion goes into fuel subsidy monthly was unsustainable as the paucity of revenue confronts the country, especially the sub-national governments.

Hernandez who provided insights into the NDU report, titled “Time for Business Unusual,” stated that should the current revenue challenge continue till 2022, only Lagos State would be able to meet its financial obligations.

The report pointed to mounting fiscal pressures due to lower-than-expected revenues in 2021 and the rising cost of PMS subsidy.

“Because most states rely heavily on inter-governmental transfers, diminished revenue inflows to the Federation Account are jeopardising fiscal sustainability at the state level.

“For example, in the oil-producing State of Bayelsa federal transfers account for 91 per cent of revenues, and declining transfers caused a 22-per cent drop in Bayelsa’s revenues per capita during the year.

“Even in the state of Lagos which relies the least on federal transfers, transfers accounted for 29 per cent of revenues in 2020. Most State expenditures cover salaries and administrative expenses, and given their rigid (i.e., nondiscretionary) nature, State-level expenditures are difficult to cut.

“Consequently, lower revenues are likely to intensify pressure on states’ debt stocks and undermine their fiscal sustainability,” the NDU stated.

According to the report, in contrast to past periods of high oil prices, the Nigerian government has this time not been able to fully benefit from the oil boom because oil production has fallen below Nigeria’s estimated capacity and the Organisation of Petroleum Countries (OPEC) quota due in part to rising insecurity and the higher cost of the PMS subsidy.

“In 2022 the federal government plans to spend about 3,000 naira (US$7) per person for health, while the cost of the PMS subsidy for next year could reach 13,000 naira (US$32) per person. Not only is the PMS subsidy costly, but it mainly benefits richer households.

“Nigeria has the opportunity to establish a “compact” with citizens that eliminates the subsidy and uses the savings to provide targeted cash transfers to lower-income-households, invest in job-creating programs, and improve its fiscal position.”

It stated further that that the insufficient supply of foreign exchange issues related to the predictability of exchange rate management, the unsustainable subsidy on premium motor spirit (PMS), burdensome trade restrictions, and the sizeable fiscal deficit financing by the Central Bank of Nigeria (CBN) are undermining the business environment, compounding underlying constraints on domestic revenue mobilisation, foreign investment, human capital development, and the delivery of public services.

The report noted that despite a strong initial recovery and resurgent global oil prices, Nigeria’s pre-crisis challenges were threatening its post-crisis recovery, highlighting the need to depart from business-as-usual policies.

“Even though Nigeria’s economy exited a pandemic-induced recession, several challenges persist including double-digit inflation, declining incomes, and rising insecurity.

“While the government took bold policy measures to mitigate the impacts of the COVID-19 crisis, the reform momentum has slowed which hinders Nigeria’s ability to reach its growth potential,” the report further stated.

The report prescribed policy options for Nigeria, including addressing fiscal pressures.

“Urgent priorities for the next three to six months include reducing inflation, improving exchange-rate management, mobilising additional oil and nonoil revenues, eliminating the PMS subsidy and redirecting expenditures towards targeted cash transfers and other priority investments, fostering competitive markets, and improving infrastructure.

“While Nigeria’s macro-economic projections have been updated since the previous edition of the NDU, the government’s fundamental policy challenges remain unchanged,” it added.

In his contribution, group managing director of the Nigerian National Petroleum Corporation (NNPC), Mr. Mele Kyari, said in a panel discussion said retaining petrol subsidy had been a huge burden to the corporation.

He warned that going forward, “the NNPC may have to start invoicing the federation to be able to maintain subsidy.”

“Today, we are evacuating about 60 million litres of gasoline from all the depots in the country. It is not national consumption and it is very understandable because of issues such as cross-border smuggling.

“As long as you have arbitrage, traders don’t see it as a crime, they just take advantage of that and exploit it. What we are dealing with is about N243 billion of fuel subsidy monthly. So, there is no magic around that.

“This is the reality that we are facing. Going forward in 2022, we simply cannot afford this; we just don’t have the resources. As a matter of fact, the NNPC may have to start invoicing the federation to be able to maintain subsidy.

“When you take out N243 billion from your total income every month, you are not able to fund your operations and so you can’t meet your other fiscal obligations. Clearly, there is a challenge in the ability to pay. So, there is a reform going on, particular in the energy sector and no one can stop,” he said.

For his part, the governor of Kaduna State, Dr Nasir el-Rufai wondered why the country would continue to allocate more monies to fuel subsidy compared with the allocations to education, roads and the health sectors.

“Is subsidising petrol more important than our health as even in a year we spent significant amount on health due to the pandemic, the budget for subsidy was still higher? Does it make sense?

“Is subsidising petrol about thrice as educating our children and preparing them for the future more important? The capital budget for roads is five times less than our budget for subsidy. We have to ask ourselves as Nigerians whether this makes sense at all.

“This is the first time in Nigeria that oil prices are rising globally, yet, there is no windfall. In fact, we are getting less. Why? Because according to Kyari, subsidy is taking N250 billion per month,” said El-Rufai who was one of the arrowheads of 2012 anti-fuel subsidy removal nationwide protests.

He disclosed that in this month (November), the corporation paid to the federation account, as part of its contribution to the amount to be shared by the Federation Account Allocation Committee (FAAC), N14 billion as against the N120 billion stipulated in the budget.

He said the NNPC had threatened that next month it would ask the federation account to give it a cheque to cover subsidy.

“So, we have to ask ourselves if this subsidy still makes sense. Who is benefiting from it other than the smugglers and neighbouring African countries and some rich people? We have to stop this thing that will bring Nigeria to its knees,” he added.

With ThisDay report

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