Opinion
Pulling Nigeria out of impending bankruptcy
By Afolabi Faramade
The World Bank in its recent economic update has warned that Nigeria is facing an “existential threat” due to dwindling revenue, continued payment of trillions of Naira on fuel subsidy, low level of tax revenue and attendant financial challenges resulting from huge cost of debt servicing.
The Bank has, therefore, advised the Federal Government to take urgent action to reverse the ugly trend and pull Nigeria from impending disaster. This is not the first time the World Bank would raise alarm on the state of the Nigerian economy.
The World Bank Country Director in Nigeria, Shubham Chaudhury and the International Monetary Fund (IMF) had expressed similar concerns at the beginning of the year.
Despite the rise in the price of crude oil in the international market, Nigeria has not benefitted because of the huge amount being spent on fuel subsidies.
The Senior Public Sector Specialist, Domestic Resource Mobilization at the World Bank, Rajul Awasthi insisted that Nigeria would have to eliminate the subsidy regime eventually. After the Federal Government earmarked N4 trillion for subsidy payment in 2022, the Minister of Finance, Budget and National Planning, Zainab Shamsuna Ahmed, stated recently that the Federal Government might spend a whopping N6.72 trillion as fuel subsidy in 2023 or pay N3.36 trillion up to mid-2023 if the subsidy regime is phased out by May 2023. It would be recalled that for several months now, the Nigeria National Petroleum Corporation (NNPC) has not remitted any amount to the Federation Account due to the issue of fuel subsidy and recovery of the amount being spent by the Corporation on fuel importation.
Apart from the contentious issue of fuel subsidy, the Finance Minister has consistently said Nigeria is battling with revenue generation which has compelled the Federal Government to keep borrowing. The debt stock had risen to N41.6 trillion in the first quarter of 2022 with projections by the Debt Management Office (DMO) that it could peak at #45 trillion by the end of the year.
At present, Nigeria is a major debtor to the World Bank. The International Monetary Fund had in March projected that Nigeria might spend 93 per cent of
its revenue on debt servicing in 2022, but the Minister disclosed a few weeks ago that about 119 per cent of the country’s revenue was spent on debt servicing. This implies that the government had to borrow to meet its debt financing obligations.
There is no doubt that this precarious situation is very disturbing 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 issue has persisted due to the poor performance and malfunctioning of the NNPC refineries in Port Harcourt, Kaduna and Warri. At present the four refineries have become moribund despite the huge amount spent on “Turn Around Maintenance” over the years. Consequently, the country depends totally on fuel importation for local consumption.
While there is subsidy on premium motor spirit or petrol, other products such as diesel, kerosene and aviation fuel have been deregulated. With the increase in the exchange rate of the Naira to the US dollar, the market prices of other products have risen astronomically. Both the manufacturing and aviation sectors have been particularly hit as a result of continuous importation of diesel for power generation and flight operations respectively.
It is very curious that while there is endless lamentation on the huge cost of fuel subsidy on the economy, successive administrations have failed to do the needful on the moribund refineries since 1999 to put an end to fuel importation. The Federal Government has held on to the refineries instead of outright privatization to international core investors to make them functional. Nigeria is a major crude oil-producing country and a member of Organization of Petroleum Exporting Countries (OPEC). There is no reason why the country should depend on fuel importation for domestic consumption if the local refineries are working optimally. The idea of fuel subsidy removal as being canvassed by the World Bank and the International Monetary Fund is not the solution to the nagging problem of fuel importation. The solution is for Nigeria to be able to refine crude oil locally to meet its domestic consumption.
Removing fuel subsidy without local production of refined products will amount to a continuation of vicious cycle of endless price increment based on the continuous depreciation of the Naira relative to the US dollar.
If there is no subsidy on premium motor spirit, the price would have jumped to about N800 per litre. This scenario would cause severe economic dislocation and catastrophe in view of the fact that Nigeria’s economy is fuel-driven.
The cost of goods and services would increase astronomically and push millions of Nigerians to unmitigated level of misery and poverty.
Already, the majority of the 200 million population are living below the poverty line. There is severe economic hardship in the country due to high cost of foreign exchange, hyper-inflation, population explosion and mass unemployment. The World Bank and the IMF should work in tandem with the Federal Government and the Bureau of Public Enterprises (BPE) to privatize the NNPC refineries once and for all.
The refineries have become wasting assets without any benefit to the economy. More importantly, withdrawal of fuel subsidy would amount to passing the buck of corruption and inefficiency of the NNPC to ordinary Nigerians.
Low Revenue Challenges
The problem of low revenue generation is due to several factors. Nigeria is unable to meet its OPEC quota of oil production due to crude oil theft in the oil-producing states of Niger Delta. This is pure economic sabotage and another manifestation of terrorism against national interest.
There is need for concerted efforts among the various security agencies especially the Nigerian Navy and the Air Force to curb this menace. Crude oil thieves are not ghosts or phantoms. It is obvious that the Nigerian territorial waters and the creeks are very porous. Crude oil thieves are economic saboteurs who deserve prompt prosecution and appropriate punishment for their criminal activities.
Optimizing Tax Collection System
A major source of Government revenue all over the world is tax. Unfortunately, the tax collection system in the country is very inefficient and ineffective. A large number of people evade tax. Only salary earners pay income tax under Pay As You Earn (PAYE) system. There is urgent need to optimize the tax
collection system through the engagement of tax consultants to compliment the efforts of Federal Internal Revenue Service for accelerated revenue generation and deployment of technology for effective tax administration. It must be stressed that corruption is a barrier and disincentive to tax payment.
Plugging Leakages in the Economy
The Nigerian economy is subject to high level of leakages. These include fiscal and budgetary indiscipline, financial recklessness, huge cost of governance at all levels, pervasive corruption and larceny in the public service as well as redundancy in various Ministries, Departments and Agencies (MDAs).
These issues have persisted due to lack of political will to carry out reforms. The humongous emoluments of public office holders should be slashed while the number of political appointees must be reduced. The Economic and Financial Crimes Commission (EFCC) and the Independent Corrupt Practices Commission (ICPC) should be more pro-active in curbing corruption. There should be no hiding place for treasury looters and economic saboteurs. There is need for transparency in the management of recovered funds. The use of “plea bargaining” by corrupt people should be discouraged. Anyone found guilty of corruption must vomit what he or she has looted. Corruption is a terrible monster which fuels poverty. We cannot fight the monster with kid gloves.
The Stephen Oronsaye Report on redundancy and re-organization of the Federal Public Service has never been implemented. The time has come for the implementation of the report. There are several redundant agencies with overlapping functions. In addition, there are thousands of jobless employees on the payroll without specific functions. In the final analysis, the constitutional provision for a bicameral legislature should be reviewed. Unicameral legislature is enough for the country. The Senate which has become the haven for former Governors should be abolished.
Most times, the majority of the Senators sleep during plenary sessions. They constitute a huge drain on the treasury. Nigeria can be rescued from bankruptcy if the right policy decisions are taken.
*Faramade is Programme Director of Journalists Against Poverty.
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