Subsidy, Forex Management Likely To Trigger Turbulence
TO feel that 2016 is going to be a jolly good year for the economy, because President Muhammadu Buhari has proposed a high fiscal expenditure plan (N6.08tn), not bench marked by realistic oil revenue, is, perhaps, fool hardy, as the budget proposal is nothing, but a time bomb waiting to explode.

And some of the likely fiscal and monetary issues that may trigger off this turbulence are: scrapping of subsidy payment on imported refined petroleum products to the country by the end of the first quarter of this year and the continued tightening of the foreign exchange (forex) stance of the Central Bank of Nigeria (CBN), which the country, in the last one year, has spent nearly $10b defending, and in the process creating arbitrage for a privileged class of citizens, who indulge in round tripping and making cheap money off the entire economy.

Just as government has refused to yield to advice to devalue the Naira and allow it find its true value, the subsidy administration in Nigeria has become a cash cow, which is run by a cartel that is ready to fund resistance of any move to scrap it.

Ostensibly influenced by this powerful cartel, the organised labour has already responded, warning against hints by President Buhari to scrap the subsidy package this March. And given hindsight of precedents in the country, the implementation of this economic measures may lead to the shutting down of businesses being financed by proceeds from either the subsidy maladministration or the forex fiasco, thus, leading to serious labour crises, and by extension, affecting the realisation of the Buhari Administration’s economic blueprint for the year.

Stakeholders’ reaction to the rather ambitious fiscal plan of Buhari’s 2016 plan is that of mixed feelings with many adopting the position of “let’s wait and see.” Their reason is that this is the first time Nigeria’s fiscal plan would be solely built on non oil proceeds in the face of falling oil prices, which in fact, have fallen far below the budgeted benchmark price, with great expectation built on only borrowing both locally and internationally and another strong presumption that public officials, who are believed to be feeding fat on government’s generated revenue would automatically develop cold feet in the fleecing of revenue, as a result of the recently introduced Treasury Single Account or the integrated personnel payment system ( IPPS), which is a check against ghost workers’ syndrome.

One of the commentators who expressed the fears, Mr. Eze Onykpere the Lead Director at the Centre for Social Justice (CSJ) said it was one thing to state an intention on paper and another thing to realise it on implementation, pointing out that the last administration of former President Goodluck Jonathan had a similar ambitious capital budget plan, which was hardly met because of dwindling oil mineral revenue.

Onyekpere, like other commentators, would rather resort to: “ Wait and see the magic the present administration will realise its vision.”

However, he has an advice for Buhari’s men: “They should focus on ensuring that there is a tight implementation of the budget proposal, such that instead of spreading the thin resources everywhere without achieving any meaningful result, they should ensure that resources deployed have meaningful impact where then can be felt.”

The World Bank Country Office in Abuja, apparently, sensing the contentious nature of the issue of fuel subsidy in Nigeria, has maintained a sturdy silence on the subject.

In the third edition of Nigeria Economic Report, which featured two thematic topics: the fuel subsidy and the natural gas resources, the merit and demerit of fuel subsidy regime were only presented, without a recommendation.

Not even repeated attempts by journalists at the Report’s presentation in Abuja could sway the World Bank’s Country Lead Economist, Mr. John Litwack, to take a position, as he maintained the bank’s intervention limit was just to present the options, while it is the Nigerian government to weigh the options and make informed choices.

Meanwhile, in an earlier working paper by the bank on subsidy titled: Impacts of removing fuel import subsidies in Nigeria, the authors averred that removing subsidies has serious negative implications on poor or vulnerable groups or households.

The authors, however, recommended that subsidies could be removed, if there is a social welfare package for the poor to take care of the pains to be associated with it.

The synopsis of the paper aptly captures the tone of the contribution: “The petroleum sector contributes substantially to the Nigerian economy; however, the potential benefits are diminished because of the existence of significant subsidies on imports of petroleum products.”

The paper noted, “subsidies on imported petroleum products are considered to be an important instrument for keeping fuel prices, and hence the cost of living, low. The costs of these subsidies, however, have risen dramatically in recent years along with increased volatility in world petroleum and petroleum product prices and increased illegal exportation of subsidised petroleum products into neighboring countries. Removing the subsidy on fuel is one of the most contentious socioeconomic policy issues in Nigeria today.”

The paper continued, an economy-wide framework is used to identify the impact of removing the fuel subsidy on the Nigerian economy and investigate how alternative policies might be used to meet socioeconomic objectives related to fuel subsidies. The results show that though a reduction in the subsidy generally results in an increase in Nigeria’s gross domestic product, it can have a detrimental impact on household income, and in particular on poor households. Accompanying the subsidy reduction with income transfers aimed at poor households or domestic production of petroleum products can alleviate the negative impacts on household income.”

However, a Development Economist, Mr. Odilim Enwegbara, speaking to The Guardian at the weekend in Abuja argued that subsidy itself was not bad, but greedy public officials, who are charged with the management of the fiscal measure, had abused its essence.

Instead of scrapping the petroleum subsidy scheme, Enweagbara advised that a more thorough procedure to its implementation should be introduced, because the same Shylock and monopolistic cabal, who are mismanaging the subsidy scheme now would turn around and inflict more pains of ordinary Nigerians in the wake of its removal through some unholy strategy of petroleum price fixing which could be unbearable for the citizens.

Enwegbara said: “That fuel subsidy is not the problem and that it is necessary, is never in doubt. What made fuel subsidy seem unwanted as it is being advocated by the same cabal and politicians who partners sabotage and milk the country is their readiness to use its absence to unleash economic hardship on the weakest members of the society. And that damaging blow will come as soon as the cabal arms itself with such a dangerous monopolistic weapon as price fixing.
“One of the benefits this will guarantee this thieving cabal is the very fact that it will give Nigeria government and people a new set of problems to be preoccupied with to the extent that no one should be talking about the trillions of naira that they stole from us in the name of fuel subsidy. In other words, what in reality they are trying to remove from our attention is the very fact that the failure of fuel subsidy policy happens because of the immense corruption smuggled into the fuel subsidy regime.”
“Of course what is not being discussed is that no matter what, there will always be subsidy in one way or another, especially if government intends to ensure that there is a uniform pump price of fuel across the nation, no matter how distantly remote some gas stations will be from either the refineries or the depots. That is because, otherwise, pump price differences could be so high from one part of the nation to another to up to 1000 per cent, if at all there is fuel in these gas stations.
“We should stop sweeping this truth under the carpet because no matter what, it can never go away. Truths we all know will always reappear no matter our efforts to hide them. One of the truths we are not talking about is how corruption has persisted all these years in fuel subsidy because our politicians and the cabal have connived with impunity to plunder our commonwealth.”

He, therefore, advised: “The only way this administration should clean up the economic mess caused by fuel subsidy corruption is for it to set up a powerful presidential commission of inquiry with the goal of fully investigating what really went wrong and how come fuel subsidy in Nigeria became synonymous with such mind-boggling corruption to the extent that trillions of naira was handed to a band of thieves while our refineries were at the same time rendered moribund as a result of constant sabotage by the cabal with the help of some NNPC staff.”