OPINION: Pull Nigerian out of impending bankruptcy
The World Bank, in its recent economic update, warned that Nigeria faces an “existential threat” due to declining incomes, continued payment of trillions of naira in fuel subsidies, low tax revenues and the resulting financial hardship due to the huge cost of servicing the debt. . The Bank has therefore advised the Federal Government to take urgent action to reverse the ugly trend and pull Nigeria out of impending disaster. This is not the first time that the World Bank has sounded the alarm about the state of the Nigerian economy. The World Bank’s country director in Nigeria, Shubham Chaudury and the International Monetary Fund (IMF) had expressed similar concerns earlier this year.
Despite the rise in the price of crude oil in the international market, Nigeria has not benefited due to the huge sums spent on fuel subsidies. Senior Public Sector Specialist, Domestic Resource Mobilization at the World Bank, Rajul Awasthi insisted that Nigeria should eventually phase out the subsidy regime. After the federal government earmarked $4 trillion for subsidy payments in 2022, Finance, Budget and National Planning Minister Zainab Shamsuna Ahmed recently said the federal government could spend $6.72 trillion in fuel subsidies in 2023 or pay 3.36 million euros. trillion until mid-2023 if the subsidy scheme is removed by May 2023. It should be recalled that for several months now, the Nigeria National Petroleum Corporation (NNPC) has not contributed any amount to the Federation account because of the fuel issue. subsidy and recovery of the amount spent by the Company for the importation of fuel.
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Apart from the contentious fuel subsidy issue, the finance minister has always said that Nigeria is struggling with revenue generation, which has forced the federal government to continue borrowing. Debt stock had reached $41.6 trillion in the first quarter of 2022, according to Debt Management Office (DMO) projections that it could peak at $45 trillion by the end of the year. year. At present, Nigeria is a major debtor to the World Bank. The International Monetary Fund had projected in March that Nigeria could spend 93% of its revenue on debt service in 2022, but the minister revealed a few weeks ago that around 119% of the country’s revenue was spent on servicing debt. the debt. This implies that the government had to borrow to meet its debt financing obligations. There is no doubt that this precarious situation is very worrying and unsustainable.
Fuel subsidy: a self-inflicted problem
The issue of fuel subsidy has remained a thorny issue in the country over the past three decades when fuel importation started under the Sani Abacha regime in 1993. The problem persisted due to poor performance and malfunctioning NNPC refineries in Port Harcourt, Kaduna and Warri. At present, all four refineries have become moribund despite the huge sum spent on “spin maintenance” over the years. Therefore, the country is totally dependent on imported fuel for local consumption. Although there are subsidies on gasoline or premium motor gasoline, other products such as diesel, kerosene, and aviation fuel have been deregulated. With the increase in the Naira exchange rate against the US dollar, the market prices of other commodities have increased astronomically. The manufacturing and aviation sectors have been particularly hard hit due to the continued import of diesel for power generation and airline operations respectively.
It is very curious that while there is endless lamentation over the huge cost of the fuel subsidy on the economy, successive administrations have failed to do what is necessary on moribund refineries since 1999 to bring an end to fuel imports. The federal government kept the refineries instead of outright privatizing them to major international investors to make them functional. Nigeria is a major crude oil producing country and a member of the Organization of the Petroleum Exporting Countries (OPEC). There is no reason for the country to depend on imported fuel for domestic consumption if local refineries are operating optimally. The idea of eliminating fuel subsidies as advocated by the World Bank and the International Monetary Fund is not the solution to the nagging problem of fuel imports. The solution is for Nigeria to be able to refine crude oil locally to meet its domestic consumption.
Removing fuel subsidies without local production of refined products will be tantamount to continuing a vicious circle of endless price increases based on the continued depreciation of the Naira against the US dollar. If there was no subsidy on premium motor gasoline, the price would have jumped to around 800# per litre. This scenario would cause severe economic disruption and disaster considering that Nigeria’s economy is fuel-driven. The cost of goods and services would rise astronomically and push millions of Nigerians into utter misery and poverty. Already, the majority of the 200 million inhabitants live below the poverty line. The country is experiencing serious economic difficulties due to the high cost of foreign exchange, hyperinflation, population explosion and mass unemployment. The World Bank and IMF should work in tandem with the federal government and the Bureau of Public Enterprises (BPE) to privatize NNPC’s refineries once and for all. Refineries have become wasteful assets with no benefit to the economy. More importantly, removing the fuel subsidy would mean shifting the blame for the corruption and inefficiency of the NNPC to ordinary Nigerians.
Low income challenges
The problem of low revenue generation is due to several factors. Nigeria is unable to meet its OPEC oil production quota due to the theft of crude oil from oil producing states in the Niger Delta. This is pure economic sabotage and another manifestation of terrorism against the national interest. Concerted efforts are needed between the various security agencies, especially the Nigerian Navy and Air Force, to combat this threat. Crude oil thieves are not ghosts or spooks. It is evident that Nigerian territorial waters and inlets are very porous. Crude oil thieves are economic saboteurs who deserve prompt prosecution and appropriate punishment for their criminal activities.
Optimization of the tax collection system
Tax is a major source of government revenue around the world. Unfortunately, the tax collection system in the country is very inefficient and inefficient. A large number of people evade taxes. Only employees pay income tax under the Pay As You Earn (PAYE) system. There is an urgent need to optimize the tax collection system through the engagement of tax consultants to complement the efforts of the Federal Revenue Service to accelerate revenue generation and the deployment of technology for efficient tax administration. It should be emphasized that corruption is an obstacle and a hindrance to the payment of taxes.
Closing the leaks in the economy
The Nigerian economy is prone to a high level of leakage. These include fiscal and budgetary indiscipline, financial recklessness, enormous cost of governance at all levels, widespread corruption and theft in the civil service as well as redundancy in various ministries, departments and agencies (MDA ). These problems persisted due to the lack of political will to carry out the reforms. The huge emoluments of public office holders should be reduced while the number of political appointees should be reduced. The Economic and Financial Crimes Commission (EFCC) and the Independent Corrupt Practices Commission (ICPC) should be more proactive in the fight against corruption. There should be no hiding places for treasure looters and economic saboteurs. There is a need for transparency in the management of recovered funds. The use of “plea bargaining” by corrupt individuals should be discouraged. Anyone found guilty of corruption must vomit what they looted. Corruption is a terrible monster that fuels poverty. You can’t fight the monster with kid’s gloves.
The Stephen Oronsaye report on federal public service layoffs and reorganization was never implemented. The time has come for the implementation of the report. There are several redundant agencies with overlapping functions. Additionally, there are thousands of unemployed employees on the payroll without specific duties. In the final analysis, the constitutional provision for a bicameral legislature should be reviewed. The unicameral legislature is sufficient for the country. The Senate which has become the refuge of former governors should be abolished. Most of the time, the majority of senators sleep during plenary sessions. They are a huge drain on the Treasury. Nigeria can be saved from bankruptcy if the right policy decisions are made.
AUTHOR: Afolabi Faramade
Articles published in our Graffiti section are strictly the opinion of the authors and do not represent the views of Ripples Nigeria or its editorial position.
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