With the removal of fuel subsidies and the implementation of Foreign Exchange (FX) reforms, Nigeria is projected to save an estimated N3.9 trillion in 2023 and a total of N21 trillion by 2025, an amount that would have gone underway if subsidy had persisted, the World Bank Nigeria Development Update report noted.
The federal government owes the Nigerian National Petroleum Corporation Limited (NNPCL) a subsidy arrear of N2.8 trillion, but there will be a significant balance of N1.106 trillion for the year.
What are Nigeria’s plans for using the potential increase in subsidy savings to fund impactful developmental projects?
Fuel Subsidy has been in existence in Nigeria since the 1970s when it was introduced to reduce the impact of oil shocks on the domestic economy.
Having previously deregulated other fuel products, petrol (PMS) was retained owing to its wide use across Nigerian homes and industries.
Subsidy, in Nigeria’s context, is an incentive given to consumers of a particular product (in this case, fuel), to purchase at a lower rate compared to the original market price.
According to the June edition of Nigeria Development Update, petrol subsidy has grown to be a huge fiscal burden on Nigeria’s economy as it increased from 1.1% of total revenue in 2020 to 32.4% in 2022 overshadowing budget allocations for health, education and social protection in the same year.
There have been suspected cases of manipulation and corruption around subsidy payments especially as the exact amount of daily oil consumption in Nigeria remains controversial. Additionally, the scheme purportedly benefits the rich elites more than the poor who purchase only 3% of the subsidized fuel.
Doubts about the judicious use of the Subsidy Savings
According to the 2019 Federal Audit Report published by Paradigm Leadership Support Initiative (PLSI), around 20.69% of the total allocation to federal MDAs in 2019, equivalent to approximately N455.14 billion, was unaccounted for.
In the same process, the 2018 analysis of an audit report of 79 MDAs shows that out of the total funds of N831.5 billion that was released, about N 617.2 billion which represents 74.2% were unaccounted for.
This trend has constrained the full actualization of budgetary objectives in both years and reduced the quality of service delivery to the public.
The issue of unaccounted funds among government MDAs is a symptom of corruption that requires urgent and robust institutional reform to avert system breakdown.
Nigeria ranks 150th out of 180 countries in the 2022 Corruption Perception Index (CPI). Nigeria’s performance remained unchanged from the previous year, 2021, as it maintained a score of 24 out of 100 points on the scale. In the ranking, Nigeria’s corruption rating improved, albeit marginal, as it moved from 154th to 150th.
Between 2017 and 2022, Nigeria maintained an average score of 25.5.
Corruption exists all over the world, but it is usually present in countries with weak institutions, often affected by state fragility and conflict.
Corruption has not only sucked up the treasury of Nigeria but has kept it underdeveloped with funds meant to execute public projects being siphoned away into private accounts and misappropriated. This trend has led to many projects being abandoned, rising poverty levels and overall impoverishment.
As of 2017, about 56,000 abandoned government projects were recorded across the six geo-political zones in Nigeria, the monetary value of which stands at 12 trillion, a report by the Chartered Institute of Project Management of Nigeria [CIPMN], cited by the Human and Environmental Development Agenda(HEDA), noted.
HEDA in a report titled; IMPUNITY GALORE: A Chronicle of some Unresolved High Profile Corruption Cases in Nigeria unearthed alleged cases of fraud and money laundering across government agencies and MDAs between 1999 and 2022 and revealed how some of the scandals went underway without any significant court resolution and some remained inconclusive till the time of the report publication.
The report emphasized that many of the probes and investigations are either terminated along the course or the committee in charge is dissolved before the completion of the exercise. In the case where the committee could conclude their findings, their reports are sometimes not considered by the legislative chamber that established them. When the reports are considered, the recommendations are hardly implemented.
Practices like these deepen public distrust and cast doubts on possible public accountability, even with the estimated 21 trillion savings from unpaid fuel subsidies by 2025.
With the potential of the subsidy removal to free up the fiscal space, the government is expected to utilize the savings for pro-poor programmes and developmental projects that will significantly impact its population and the economy in general.
The People’s viewpoint
A legal advisor and partner at Bloomfield Law Practice, Dr Ayodele Oni, said: “Whilst utilization of subsidy proceeds is largely dependent on the management of the funds by the government, there is no gainsaying that the removal of fuel subsidies in Nigeria has the potential to generate significant funds for our economy, and these funds can be diverted towards nation building such as Infrastructural development, debt reduction to stabilize the economy, safety nets and building productive capacities.”
He explained that It is crucial to address corruption and ensure transparent governance to prevent wasteful spending and effectively utilize the subsidy savings for the benefit of the country and its people, as without these the impact of subsidy removal would not be felt by the citizenry, he noted.
An environmentalist and data enthusiast, Gbemileke Kolawole, expressed doubts about the ability of the government to effectively use the projected savings from subsidy removal with reference to past records of government expenditures that are either marred by cases of corruption or misappropriation.
Similarly, a youth advocate, who prefers to talk on a condition of anonymity, submitted that this is a chance for the government to prove to the citizens that they are committed to their statutory duties to advance human and national development.
The government at the national and sub-national levels should prioritize public goods above personal interests and ensure that the subsidy savings are injected into causes that matter to restore the dwindling economy, she noted.