Few public policy issues raise as much anxiety and apprehension among Nigerians as any talk of increasing fuel prices. That was precisely what happened last week when Managing Director of the International Monetary Fund [IMF] Mrs. Christine Lagarde “advised” the Nigerian government to jettison spending on fuel subsidy. She said government should instead expend such money on health, education and infrastructural development.
Lagarde spoke at the Global Policy Agenda press briefing of the World Bank Spring Meeting in Washington DC. She said subsidy spending was infringing on other critical areas of capital development,hence the need for the government to refocus. She also said it is IMF’s general principle to discourage fossil fuel subsidies because of its consequences on other areas of life and development.She said, “As far as Nigeria is concerned, with the low revenue mobilisation that exists in the country; in terms of tax to GDP, Nigeria is amongst the lowest. A real effort has to be done in order to maintain a good public finance situation for the country.” She however said for subsidy to be removed, “there has to be a social protection safety net that is in place so that the most exposed in the population do not take the brunt of those removal of subsidies.”
The federal government’s response did little to calm Nigerians’ fears. Minister of Finance Mrs. Zainab Ahmed said after last week’s Federal Executive Council meeting,“Everywhere in the world where IMF does its review…their advice is when you give subsidy, whether it is fuel or power, look at how you can exit doing that. Its the same advice they gave Nigeria…We agree with that advice. We need to find how we can exit fuel subsidy. We can do that only when we have enough buffers to cushion the effect or removal for our people.It is up to the Executive with the support of the legislature to agree what those buffers are.” Mrs. Ahmed also said though the Economic Management Team (EMT) has been discussing it periodically, it has not been able to decide what to do.
This is not encouraging at all. Already, fuel queues emerged in many states and Abuja last week, the usual indicator to Nigerians that government is laying the grounds to increase fuel prices. Nigeria Labour Congress’ [NLC] president Ayuba Wabba has already called on the Federal Government to reject IMF’s call to remove fuel subsidy, saying such advice was synonymous with a hike in fuel price that would lead to more hardship for Nigerians.
The government recently said that the landing cost of refined fuel in Nigeria is N180 per litre, which means there is a subsidy of N35 per litre. Even though the Buhari Administration refuses to call it subsidy, the fact is that more than a trillion naira is lost by NNPC every year as “under recovery.” This is the amount it loses when it diverts some proceeds from the sale of crude oil abroad to finance the import of refined fuel for domestic needs, which it in turn sells at a fixed price to marketers. This system is more opaque and probably more prone to corruption than setting aside budget funds for petrol subsidy.
The Economic Management Team and the government must therefore come to grips with this matter, and very soon. While it is politically volatile, the current arrangement is also unsatisfactory. The most obvious solution is to repair the refineries and resume domestic fuel refining but from all indications, the government cannot do this. It should therefore consider selling the refineries to those who can turn them around. Even the Dangote refinery will not work like magic because the right policy measures must be put in place if it is to sell its products domestically. Spending a trillion naira on fuel “under recovery” is unbridled national profligacy, but the public will probably not tolerate an end to fuel subsidies until the most appropriate cushion measures are put in place.