The World Bank’s $800 million loan to Nigeria as a palliative to soften the effect of the projected withdrawal of gasoline subsidies by June has infused the economy with uncertainty and fear.
The administration of Muhammadu Buhari has often stated its desire to end gasoline subsidies prior to the beginning of the succeeding administration on May 29, 2023.
As time passes, discussions on the effects of subsidy removal have become more heated.
The withdrawal of fuel subsidies has drawn the ire of labor, trade unions, and certain specialists in the oil and gas industries because it would harm Nigerians by causing inflation to soar.
It is difficult for the incoming government to maintain or eliminate fuel subsidies.
The Minister of Finance, Budget, and National Planning, Ms. Zainab Ahmed, claimed that Nigeria has obtained $800 million from the Washington-based World Bank to provide post-subsidy removal palliatives for Nigerians after last week’s Federal Executive Council meeting.
The Minister stated that 50 million Nigerians, or 10 million households, would receive the post-subsidy palliative programs.
But, Nigerians have expressed concerns about the secrecy surrounding the aforementioned amount from the World Bank, questioning whether the attempts won’t just be another white-goose chase.
According to a NEITI study from September 2022, Nigeria had spent $13.7 trillion (or $74.386 billion) on fuel subsidies over a fifteen-year period (2005-2022).
According to this, the federal government planned to put N3.36 trillion in the budget for 2023 as payment for the first six months of subsidies (January to June). From 2005 through the middle of 2023, Nigeria’s fuel subsidies would have consumed an average of N17.6 trillion.
As a result of Nigeria’s uneven ability to generate money, the country’s total debt load has been growing; the most current estimate is N44.06 trillion.
Federal Inland Revenue figures indicate that Nigeria collected N10 trillion in income in 2022.
In this case, the worry that the nation will receive another $800 million loan from the World Bank causes waves of anxiety in the minds of everyone involved.
In an interview with DAILY POST on Monday, Muda Yusuf, director of the Centre for the Development of Private Business, said it is weird to borrow money to pay for palliatives when fuel subsidies are removed.
In the past, he said, gasoline subsidies were not financed through borrowing; rather, the money saved from the withdrawal of the subsidies was used to pay for palliative care.
Yet Yusuf emphasized that the removal of gasoline subsidies and palliatives should be left to the new administration.
First off, any discussion of palliatives and subsidy elimination should be left to the future administration.
“We have used palliatives for subsidy-related issues, but none included borrowing.
The current proposal is a little odd because it used to be that palliatives were paid for with the money saved from subsidy elimination.
In addition, the delivery of palliatives has policy implications. To encourage investment in industries that could lessen the effects of subsidy elimination, the government must look into possible fiscal and monetary policy measures.
“These people include financiers in fertilizer factories, pipelines, petrochemicals, marketing, and refineries, among other things. Also, there should be incentives to encourage the use of autogas and investment in the power sector.
Also, the withdrawal of gasoline subsidies is non-negotiable, according to Mr. Idakolo Gbolade, CEO of SD & D Capital Management, given the status of the national economy.
He explained that by eliminating subsidies, money will be made available to lower the federal government’s debt.
He was concerned that the withdrawal of fuel subsidies will worsen Nigerians’ already dire situation if the aforementioned $800 loan from the World Bank is not appropriately directed.
If the future administration intends to reform the economy, get rid of waste, and free up money for infrastructure development, subsidy removal is non-negotiable.
“Yet, it will increase pressure on an already stressed-out population; as a result, effective palliatives that are effectively channeled are required.
If used effectively, the $800 million from the World Bank can lessen the discomfort of subsidy elimination.
“It is emphasized that this could lead to an increase in debt, but on the plus side, money made from subsidy removal might aid the government in lowering its projected debt load for funding the 2023 budget.
“The new government must immediately look at ways of reorganizing the government’s revenue profile in order to increase it and make the nation more attractive for greater foreign investment in important areas of our economy,” he said.
Regardless of one’s position on the issue, the federal government must be transparent about its plans to eliminate fuel subsidies in order to prevent the nation from setting out on another expensive journey that could leave it further indebted.