Stakeholders may force FG to raise subsidy removal funding

Forum 1 year ago

Stakeholders may force FG to raise subsidy removal funding

The Federal Government may be compelled to spend far more than the $800 million (N371.2 billion) it budgeted due to an expansion in the range of stakeholders’ negotiations currently ongoing.

This hint was dropped by the Finance Minister, Zainab Ahmed, while briefing the Nigerian media contingent at the just concluded World Bank and International Monetary Fund, IMF, 2023 Spring meetings in Washington DC, USA.

The Federal Executive Council, FEC, had earlier this month concluded the budget with an estimate of N371 billion to be raised as a loan from the World Bank for palliatives to cushion the effect of fuel subsidy removal on low-income households totalling about 10 million, with a headcount estimate of 50 million people.

The budget which has now been tabled before the National Assembly for approval, is also estimated at N5,000 per month, per household.

However, speaking at the media briefing, Ahmed said: ”The initial design is to disburse cash transfers of N5,000 per month per household for a period of six months. So, whether this is enough is an assessment that we are undertaking with the transition team.

”If it’s not enough, the country has to raise additional resources to be able to cover more people, extend the period or increase the amount; whichever is finally negotiated upon.

”When the subsidy is removed, there would be additional revenue that would now accrue to the federation account.

”One of the things we are working on is how this incremental revenue would be used. The money belongs to the federal, state, and local governments. So, we need another decision of how to use this.

”We hope that we’ll be able to still fence this incremental revenue and apply it to measures that will help to ensure that the fuel subsidy removal is actually sustained so that it won’t be another start-and-stop program.

”But this has to be a collective decision. The current administration and the incoming administration are working on a plan to make sure we have a consensus on how to use that incremental revenue.”

Reinforcing the inconclusive state of the palliative funding, she also stated: ”On the issue of other palliatives beyond the transport sector, again it would be part of the consensus; so depending on what the various stakeholders’ positions would be we’ll be engaging with, including what organised labour will be asking for, we will reach the final decision.

”So there will be a consideration of whether some of the support to the transport sector will be directly or indirectly; but again it’s not a decision that has been taken yet on how to deploy the incremental palliative because it has to be a consensus between the various stakeholders and these stakeholders include the states, different unions, the incoming administration as well as the outgoing administration.”

On the loan acquisition and administration process, Ahmed stated: ”The $800 million has been negotiated and approved by the Federal Executive Council and we now have a request before the parliament for approval. And once the parliament approves it, we roll.

”We’ve also been doing preparatory work side by side along the approval process, and that includes the building of the social register which will be used for the electronic transfers of the funds.

”We needed to have this ready because when the government eventually removes the fuel subsidy, there will be an immediate transport palliative that will be provided to the most vulnerable members of our society who have been identified, registered, and now contained in our national social register.

”This effort is led by the Ministry of Humanitarian Affairs, Disaster Management, and Social Development. They developed that register with the support of the World Bank. The register has about 10 million households and that’s an equivalent of 50 million Nigerians”.

Rising debt servicing cost

Meanwhile, the minister explained why the cost of servicing Nigeria’s foreign debt has maintained a steady rise in recent times, attributing it to global economic conditions.

She stated: ”Debt was one of the main things that were discussed throughout the sessions at the World Bank. It is an issue for most developing countries.

”Today as we speak, because of high inflation globally and the continuous quantitative easing, the central banks globally are undertaking, interest rates continue to rise. So, if you have taken a foreign loan, your cost of debt just rises without you doing anything.”

Debt burden

On the sustainability of the debt profile, given additional borrowings, Ahmed said: ”There hasn’t been a specific landing but it is a lot of considerations that globally there must be some initiatives that would improve the fiscal space of countries that have high debt burden, including things like debt standstill or the freezing interest rate at some certain point and several options that are being discussed but there has to be an agreement on what to do.

”During COVID-19, there was a Debt Service Suspension Initiative, DSSI, as a global initiative and after that, there was a common framework. So, it is something similar that is being worked on.

Tinubu team in World Bank

The minister revealed that the political transition team was part of Nigeria’s various meetings at the World Bank.

Giving some details, she said: ”We also understand they had meetings, they also joined some of our meetings but they didn’t join all of our meetings.

”The good thing in Nigeria today is that this transition process is guided by executive order. The executive order requires that there is a joint transition team.

”So, the transition team is both the incoming as well as the outgoing administration. And when we were preparing for this meeting, they sent a formal request that they want to participate and we welcomed it, and because of that, we organized some of the meetings to have them involved in.

”They were all part of the bilateral meetings we had today. They also joined the deep dives that we did on Monday. So, we are working collaboratively.”