Dike Onwuamaeze
The Centre for the Promotion of Private Enterprise (CPPE) has stated the severe pressures arising from the current escalation in petrol prices is not enough for Nigeria to return to the old subsidy regime at a fiscal cost of N19.16 trillion annually.
The CPPE said the subsidy debate should not be viewed solely through the lens of pump prices because of its wider implications for fiscal sustainability, foreign-exchange stability, investment, domestic refining, industrialisation, employment and energy security.
It said that “the central policy question is therefore not whether Nigeria should return to the old subsidy regime, but how to preserve the gains of the reform while reducing its social costs and translating the resulting fiscal space into tangible improvements in citizens’ welfare.”
The CPPE expressed these views yesterday in its policy brief on fuel subsidy titled “Petrol Subsidy: Preserving Reform Gains While Protecting Citizens,” in which it stated that “Nigeria’s strategic objective should be to transition from dependence on imported petroleum products to becoming a competitive regional refining and petrochemical hub.”
The Chief Executive Officer of CPPE, Dr. Muda Yusuf, estimated in the policy brief that Nigeria spent between $10 billion and $15 billion annually to fund petrol subsidy until it was removed by President Bola Ahmed Tinubu, adding that it would cost the federal government approximately N20 trillion annually to restore the petrol price at its May 2023 level.
Yusuf said: “Using an estimated PMS consumption benchmark of 50 million litres per day and an indicative subsidy requirement of ₦1,050 per litre, the potential fiscal exposure would be approximately ₦52.5 billion daily, ₦1.575 trillion monthly and ₦19.16 trillion annually (approximately ₦20 trillion).
“An annual subsidy bill approaching ₦20 trillion would impose an enormous opportunity cost. It would compete with spending on infrastructure, education, healthcare, security, agriculture and social protection, while potentially widening the fiscal deficit and increasing borrowing and debt-service pressures.
He stated that CPPE recognised the current petrol-price escalation presented a serious cost-of-living, inflation and competitiveness challenge requiring urgent intervention.
“However, restoring the pre-reform universal subsidy regime is neither fiscally sustainable nor economically prudent.
“The appropriate policy direction is to preserve the downstream petroleum reforms while aggressively mitigating their social and economic costs.
“Government should prioritise affordable transportation, reliable electricity, food production, targeted social protection, healthcare, education and support for productive enterprises. Equally important, the fiscal gains from subsidy removal must become more visible in infrastructure, public services and productive investment.
“There must also be greater transparency and accountability in the utilisation of the additional resources accruing to federal, state and local governments.
“The subsidy debate should, therefore, move beyond the binary question of whether petrol subsidy should be restored.
“The more consequential issue is how Nigeria can convert the gains of the reform into lower structural costs, stronger domestic production, improved competitiveness, greater energy security and measurable improvements in citizens’ welfare.
“That is the pathway to making the reform economically sustainable and socially defensible,” he said.
Yusufadvised government to “expand affordable public transportation, rail freight and logistics infrastructure; improve grid reliability and accelerate CNG, solar and distributed-energy solutions and strengthen agricultural security, irrigation, rural infrastructure, logistics and productivity.”
He also urged government to “direct support towards vulnerable households; improve affordable public provision to reduce major household expenses, reduce energy, logistics and financing costs particularly for Micro, Small and Medium Enterprises (MSMEs) and maintain a predictable market-oriented framework that protects investment confidence and supports further refining investment.”