Suspension Of Subsidy Removal: The Economic Implications Unveiled
Oil & Gas

Suspension Of Subsidy Removal: The Economic Implications Unveiled

Buhari and pETROL SUBSIDY

By Babajide Okeowo

  • Expert Says Cost of Subsidy Funding To Increase Due To Surge in Crude Oil Price
  • Funding Of Critical Infrastructures To  Be Affected, Increase Smuggling Activities
  • Prospective Investors In Downstream  Oil Sector Will Thin Out
  • Nigerians Hails Suspension, 
  • APC Welcomes Move

Following the decision of the Federal Government to indefinitely suspend the planned removal of petrol subsidy, an economist has disclosed that this decision comes at a great economic cost to the country.

The economist, Muda Yusuf, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), made this known in a statement issued on Monday in Lagos.

Muda, who was one previously Director General of the Lagos Chamber of Commerce and Industry, said the outcome was predictable, especially with an impending general election next year while warning that the economic cost of the capitulation is equally weighty. 

“This would surely affect funding for critical infrastructures such as roads, railways, healthcare, education, and even security.

The petroleum products smugglers, beneficiaries of the fiscal leakages in the fuel subsidy ecosystem and their collaborators will continue to smile to the banks for the next one and half years” he said.

Speaking further, Muda predicted that it will be tough for some states in terms of payment of salaries, especially states that are heavily dependent on federal allocation.

He added that the Central Bank of Nigeria, CBN may have to continue to cover financing gaps through ways and means.

“This of course has serious inflationary implications.  The macroeconomic outcomes would adversely impact on the exchange rate, leading to further depreciation of the currency.

“Meanwhile, prospective investors in the downstream oil sector would withhold their investments until the policy environment becomes conducive.

“Additionally, a major confidence crisis has been created around the Petroleum Industry Act as a result of this capitulation.

“These are the prices we would have to pay as a country for the policy reversal,” Yusuf said.

In a stark contrast, Nigerians on social media have commended the government for listening to the voice of the masses.

According to Yakub Oni, tweeting via the handle @yakub_oni said, “This is better for the good of the generality”.

He was equally supported by Olalere Oladimeji Abideen who gave kudos to the FG in a tweet d via @Oladime1Olalere

“Kudos to FG for listening to the masses” he tweeted.

According to Dooga David Terkuma Ikyobo, the action of FG is commendable.

“This is commendable” he tweeted.

The action of the Federal Government has equally drawn commendation from the ruling All Progressives Congress (APC).

According to a statement by the APC, it is commendable that the Federal Government took into consideration the fact that the removal of subsidy at this time will heighten inflation and cause undue hardship on the citizenry.

The party asserted that the programmes and policies of the government are meant to benefit the people, the APC said that if the timing of the planned subsidy removal would cause hardship on citizens, then a review was necessary.

“We commend President Muhammadu Buhari for always putting the welfare and well-being of Nigerians first as he has serially displayed in the implementation of programmes and policies of this administration.

“In line with the new Petroleum Industry Act (PIA), the Federal Government is already putting in place measures, particularly boosting our local refining capacities to reduce the country’s reliance on expensive imports of refined petroleum products.

“This will in due course usher in the eventual and full deregulation of the country’s petroleum sector”.

The APC commended the cordial and healthy relations between the executive and the 9th National Assembly which it says has ensured good governance.

“Nigerians have been the ultimate beneficiaries as displayed in the positive outcomes of the meeting between Minister of Finance, Budget and National Planning, Dr. Zainab Ahmed, and the Senate President, Ahmad Lawan on the suspension of the planned subsidy removal,” the party added.

Meanwhile, it has been gathered that concerns over soaring inflation in the country and intense pressure from organized labour and Nigerians was responsible for the decision of the Federal Government to suspend the plans to remove fuel subsidy.

Having announced that it was set to remove subsidies in 2022, the Federal Government had come under intense pressure from Nigerians, including the Nigeria Labour Congress (NLC), Trade Union Congress, TUC and others who have threatened to embark on a nationwide protest from January 27.

The Trade Union Congress (TUC) has directed its state chapters to commence mobilisation for industrial actions against petrol subsidy removal.

In a communique released after a meeting, TUC President Quadri Olaleye said the removal of subsidy would have an adverse effect on the masses.

Earlier, the NLC had, at a meeting on January 11, directed its members, affiliate unions and civil society partners to prepare for nationwide protests against the planned removal of subsidy from January 27 to February 1.

The labour union also asked its affiliates nationwide to mobilise their members to ensure total compliance with the planned nationwide protests.

The Association of Senior Civil Servants of Nigeria (ASCSN) also opposed the plan, vowing that its members would resist the removal of subsidy.

Also, a former Military Head of State Abdulsalami Abubakar kicked against the planned removal of subsidy, warning that higher fuel prices would drive millions of Nigerians into poverty.

Also, the latest consumer price index report, released by the National Bureau of Statistics (NBS), revealed that Nigeria’s inflation rate rose after eight months of consecutive decline in December 2021.

The inflation rate rose from 15.4 per cent in November 2021 to 15.63 per cent in December 2021.

There are concerns that the cost of goods and services will rise astronomically in the event of the removal of petrol subsidy.

Consequently, at the meeting with members of the National Assembly on January 24, Ahmed admitted that the Nigerian government understood that removal of subsidy would worsen inflation in the country.

The minister noted that the removal of the subsidy would impose more hardship on Nigerians, a situation which she said President Muhammadu Buhari did not want.

Consultations with stakeholders showed that the timing of the planned removal of subsidy was problematic, according to the minister.

Recall that opposition to the planned subsidy removal heightened after reports emerged that an ad hoc committee of the NEC had recommended the hike of the fuel pump price to N302 per litre from February.

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