May 27, 2022

Subsidy Removal Will Ease Off Nigeria’s Debt

3 min read

By Adewole Kehinde 

The Nigerian National Petroleum Company Limited put the amount spent on subsidising Premium Motor Spirit, popularly called petrol, between January and October 2021, at N1.03tn.

This amount, if fuel subsidy is removed will go a long way to improve water supply, power and railways to airport terminals, communications, educational and agricultural processing.

As of December 2021, the most recent official data available, Nigeria’s public debt was N32.9 trillion. This is according to the country’s debt management office.

This debt comprised:

N12.7 trillion ($33.3 billion) in external debt, all of it contracted by the federal government.

N20.2 trillion ($53 billion) in domestic debt, including loans by banks. Of this amount, the federal government owed N16 trillion ($42 billion) while the balance was loans by the state governments and the federal capital territory.

Of the external debt, 9.7% or N1.2 trillion ($3.3 billion) was owed to the Export-Import Bank of China. This is a state-owned and funded bank that supports China’s foreign trade and investment.

The debt to China formed 80.1% of bilateral debt, or $4.1 billion. Bilateral debt generally refers to debt loaned by one state to another state. Other countries that have lent to Nigeria are France, Japan, India, and Germany.

Multilateral debt, or debt owed to international financial institutions such as the African Development Bank, the World Bank and the International Monetary Fund, stood at $17.9 billion.

There is no doubt that the deductions by the NNPC from its remittances to FAAC had raised diverse concerns lately, particularly among State governors.

The Governor of Kaduna State, Nasir El-Rufai, for instance, recently decried the high cost of fuel subsidy, which according to him, was not reasonable.

He stated that the Nigerian Governors’ Forum had met and agreed to back the Federal Government’s transport palliative scheme as well as halt the petrol subsidy regime. Although I am against that because most Nigerians that need that money wont get it due to corruption.

According to El-Rufai, the use the N250bn per month that would have been lost between February and May to do this conditional cash transfer that would put money in the pockets of Nigerians and alleviate not only the cost of transportation but the two to three per cent job inflation that is expected when the subsidy is eliminated. We cannot sustain it. We cannot continue with it.

Even though the Nigeria Labour Congress is kicking against fuel subsidy removal, I would like to remind them that that majority of States may not be able to pay salaries of civil servants, or even have any money to run the government.

Already, some states are building up arrears, even oil-producing states are struggling to pay salaries.

Subsidy was removed from the telecommunications industry when NITEL was unbundled and today, SIM card bought for N30,000 years ago is sold at N100.

With many private refineries springing up across the country, fuel may sell for N50 per liter soon.

Some argued the Senate President said President Buhari has not asked anybody to remove subsidy. To the Senate President, they need to know that subsidy is referred to under recovery by the NNPC Limited and the country cant afford to be under recovering N1trillion every year and keeps borrowing externally.

It is time the Subsidy is removed based on the law of Petroleum Industry Act.

Adewole Kehinde is a public affairs analyst based in Abuja and can be reached via 08166240846, 08123608662

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