Time To Ditch The Subsidies?
PricewaterhouseCoopers (PwC); the world-renowned accounting and consulting firm, has just made a rather startling revelation about Nigeria’s spending on subsidies.
At the recent roundtable organised by Mainstream Energy Solutions -operators of the Kainji and Jebba hydropower generation companies (Gencos) — PwC revealed that the Federal Government has spent about NGN 2.3 Tn as subsidies on petrol and power consumption between 2015 and 2018.
That’s a total of NGN 2.32 Tn spent by the Muhammadu Buhari-led administration on subsidising the consumption of fuel and electricity within a period of 3 years.
As gathered by THISDAY, these details were contained in a report presented by the Chief Economist of PwC Nigeria, Dr. Andrew Nevin, to stakeholders of the power sector at the roundtable.
The report also mentioned that the total subsidy on electricity alone during the said period is enough to fund the current budget of the ministries of health and education.
The expenses on subsidies during that period also represents 26 percent of Nigeria’s federal budget for 2019 and 17 percent of the nation’s current foreign reserves.
A part of the report reads: “The Federal Government has expended about NGN 1.2 Tn as petroleum subsidy over the past four years (2015-2018).
“The tariff shortfall in the electricity sector which technically is the electricity subsidy payable by the federal government stood at NGN 1.12 Tn between 2015 and 2018.
“Both subsidies amount to NGN 2.3 Tn, which represents about 17 percent of current foreign reserves and 26 percent of the 2019 budget.”
The Broth Thickens
The subsidy debate has been raging on for years and the latest bytes from PwC are yet another indication of how much the Nigerian government spends on partly paying for products consumed by locals.
In simple terms, the Nigerian government makes things like petrol and electricity cheaper for its citizens by partly paying for it.
That sounds like a good thing but the thought of how much money goes into paying for something that ultimately benefits mostly the rich and how much could be saved up and channeled into other, more meaningful developmental efforts that would benefit everyone is causing debate in recent times.
If the government does abandon the subsidy play, the price of fuel and electricity will increase, but it will free up a lot more funds for developmental projects. And then, it becomes a question of if all that money will go into something meaningful and help achieve the desired results.
Subsidy removal would certainly cause some temporary pain in the present, but it could be Nigeria’s ticket to all-encompassing economic growth. And that’s if it is done right.
The International Monetary Fund (IMF) also weighed in on the matter recently. In a blog post titled, “Fuel for Thought: Ditch the Subsidies”, the IMF made known that the fuel subsidy which some countries pay as an attempt to reduce the price of fuel for consumers, typically benefits the rich more than the poor.