With oil prices in a cautious but steady recovery mode, the federal government has, once again, rehashed the same old but worn-out position that continued regulation of the pump price of Premium Motor Spirit (gasoline) does not only cause the stagnation and impoverishment of the citizen. , but that it mainly benefits the rich to the detriment of the poor. This was, once again, another case where Nigerians would be asked to swallow this blatantly dubious reasoning of the Petroleum Price Regulatory Agency, PPPRA, that “apart from Lagos, Abuja and Port Harcourt, people rarely buy petroleum products at official prices ”.
The government’s dilemma and apprehension is understandable. Fuel prices have remained stable since early December, when the government set the current price. Then crude prices averaged $ 50 a barrel. Today, they have passed the $ 70 mark, hence the pressure on the government to adjust the price of heating oil. Currently, the Nigerian National Petroleum Corporation, NNPC, estimates the subsidy for gasoline alone at between 100 and 120 billion naira per month. And all of this at a time of shrinking global demand for oil in the aftermath of the COVID-19 pandemic. In March, for example, domestic production was 1.429 million barrels per day compared to the 2021 budget forecast production of 1.86 million barrels. The economy is in dire straits. Most of the states in the federation are virtually bankrupt.
We agree that the burden of subsidies is an unnecessary burden on the economy. This is even more true now that the distributable income of the federation account has considerably decreased.
Unfortunately, although we agree with the federal government on the need to eradicate the ghost of the subsidy, we are unable to find a rationale for its withdrawal at this point. Obviously, it is difficult not to see in the current frenzy more than the result of the same erroneous premises which, while claiming to be justified by the promotion of the public good, denies the grim socio-economic realities of high unemployment, inflation and mass poverty and, by extension, their correlates. It is certainly not so much the economic arguments presented by the federal government that seem fairly straightforward and valid; it is whether the government is able or even ready to consider other clues that would make such a proposal reckless at the present time.
For starters, the issue of subsidies is certainly a far cry from the typically one-sided discourse that crude prices are the only determinant. Because, while the government is always too keen to play on the price factor, it pretends to ignore the exchange rate factor, which, in addition to being an essential part of the fuel price model, is also an important element in the cost equation. Clearly, had oil prices remained at December 2020 levels, the government still should have argued for a subsidy of exchange rate differentials – following the devaluation of the naira.
More than the above, it is also a question of whether citizens already hurt by inflation may be made to bear an additional burden at this time. For example, it was not until May that the National Bureau of Statistics estimated the inflation rate at 17.93 percent. While this rate may seem like a modest improvement from the previous month of 18.12%, overall the indications are that food prices have increased across the board. This trend has since been confirmed by nothing less than the World Bank, whose latest development update highlighted the factor of soaring food prices, responsible for the fall of around seven million Nigerians. below the poverty line in the past year alone. In other words, just as the real incomes of Nigerians have declined, millions more are plunged into extreme poverty by a combination of factors! And all of this at a time of record unemployment – the latest indication being the quantum leap from 27.1% in the second quarter of 2020 to 33.3% in the fourth quarter. Another important point the government always avoids referring to in its quest to remove subsidies is its failure to explain why a large crude producer like Nigeria would have to import fuel for decades. Granted, the current government is not solely responsible for this situation, it could have done something over the last six years in power to remedy the situation as it saw fit.
All in all, far from the eternal fixation on subsidies, a government that claims to have its eyes set on lifting $ 100 million out of poverty should instead be concerned with stemming the rate of inflation, reducing the rate of poverty and push policies to strengthen the naira while generating productivity in manufacturing and agriculture. The last thing he thinks about should be exacerbating an already dire situation. As for states, reducing corruption and waste in their bureaucracy while improving their internally generated revenues would appear to be the way to go right now.