It’s a loan! No, it’s a grant! It’s a loan grant 🤔.
Peace!
We don’t need to go to court over this too. When you grant a loan to someone, what do you call that?
Loan grant, isn’t it? 😉
That settles the case. The two sides won.
That’s how to move Nigeria forward in times like this when citizens consider petitioning the International Grammar Court (somewhere between the Hague and Haiti) over what fascism means.
So much debate over the $800 million ‘loan grant’ to Nigeria.
fuel subsidy
On the grant side, The Channels TV put it this way: “FG Secures $800m World Bank Grant For Subsidy Palliatives.”
The Vanguard put it in a similar way: “FG gets $800m World Bank grant for subsidy palliatives”
Both did not comment on a repayment plan for the grant.
“The federal government says it has secured the sum of $800 million from the World Bank, as part of its post-subsidy palliative plans” The Cable put it safely without stating whether it was a loan or a grant.
Some even agree that it is a gift and “we don’t need to pay back”:
“Help us first understand exactly what this funds – this $800 million. Is it a loan or is it a grant? And what will that mean for our economy?”, An Arise TV host asked during an interview with the Dean of the Postgraduate School of Baze University, Professor Abiodun Adeniyi, and an economist, Tope Fasua.
“I believe it’s a grant. It’s clearly stated as a grant. So, because it’s a grant, it’s a little bit easier to absorb. We don’t have to pay back. But, of course, it’s a bit worrisome that we still have to depend on World Bank. IMF, and all these bodies for us to solve our local problems.” Tope Fasua responded.
However, Business Day took an exception: “Contrary to FG’s claim, World Bank’s $800m for subsidy palliatives is another loan.
“Details of the agreement seen by BusinessDay showed agreement between the federal government and the World Bank has a repayment plan which will be made from 2027 to 2051, twice a year.
“Let’s stop the misinformation that this is a grant. It’s a loan,” Olúṣeun Onígbindé, the co-founder and CEO of BudgIT, a Nigerian civic startup said.”
Reuters called it “funding” without mentioning if it was a grant or loan facility:
“Nigeria has secured $800 million from the World Bank to scale up its national social program ahead of the removal of its costly but popular subsidies on petrol in June, Finance Minister Zainab Ahmed said on Wednesday.”
You see, that’s the way to go.
Let’s just call the $800 million ‘funding from a lending organisation’, and we arrive at a ‘loan grant’, a safe way to make peace.
So, now we can move on to the main issue about the loan grant – the question of fuel subsidy:
- Is it true that the $800 million Loan grant was really conditioned on subsidy removal?
- If you want to end subsidy, why borrow $800 million again?
- Why would the government remove fuel subsidies, in the first place?
- Should the government remove fuel subsidies by seeking more loan grants?
- What will happen to the poor if the price of fuel shoots up after the fuel subsidy is removed?
- What if the $800 million was a pure grant in exchange for the removal of fuel Subsidy?
- Will the removal of fuel subsidies not disrupt the economy – inflation, GDP growth, poverty, etc?
- Will the increase in petrol price not lead to further hardship for the poor and increase poverty?
These salient questions and more about fuel subsidies in Nigeria must be answered on whichever side of the loan-grant debate we find ourselves. But before we dive into this perennial issue, it is good to first understand what ‘fuel subsidy’ is and why the issue has lingered this long, or why it is worth securing funding from a lending institution to quell.
What is Fuel Subsidy?
First, in Nigeria, fuel subsidy is a way of describing the former regime when all crude products like kerosene, diesel, and petrol were subsidised. Now the former two are no longer subsidised. Only Petrol (PMS) is being subsidised. So it’s safe to say the $800 million loan grant is directed at ending petrol subsidy.
In general, a subsidy is a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.
“It aims to make essential commodities available to an average citizen, and provision for it is widespread across various economies,” a Dataphyte research document stated.
Petrol subsidy sounds like a good idea then.
“However, subsidising fossil fuels by economies has gulped huge amounts of funds globally.” That is where the problem starts.
Besides, empirical studies show that fuel subsidy all over the world favour the rich rather than the poor it is meant to help (unlike other subsidies like those on food, education, or low-cost housing).
Dataphyte Research further observed that “The oil price shocks in 1973 coupled with the deregulation of the naira, made the prices of petroleum products beyond the reach of an average Nigerian. Thus, the government stepped in to subsidise the prices of products for its citizens.
This subsidised price is usually below international prices for the products, which means the government has to make up for the differentials by augmenting the difference from the public purse.
Between 2010 and 2021, Nigeria spent 23% of its revenue and 14% of its total expenditure on oil subsidies. Due to the country’s low revenue profile, the subsidy amounted to 1% of the country’s GDP.
Successive governments have made efforts on subsidy removal to liberate more funds for development projects. However, Nigeria has only removed subsidies for diesel and kerosene while that for petrol persists.”