Different stakeholders have pointed out various reasons why the elimination of fuel subsidy by Nigeria is critical. A good number of stakeholders are on the same page on this matter.
However, the complaint that most people have is that why put the horse before the cart? Before implementing the policy, stakeholders are of the view that the government should have put the palliatives in place for the public to see what they could use to reduce the accompanying hardship before implementing such policy.
Another thing that is grossly lacking is the lack of communication from the government to the citizens. This is a critical aspect of its implementation. The government should deploy all manners of mediums to reach out to the citizens seeking their understanding.
Top among the reasons why it is necessary to eliminate subsidies is the fact that the fiscal deficits of the country have been growing and have been larger than budgeted, forcing the government to resort to (expensive) Ways and Means financing from the CBN ex-post .
Inflation which is already high has been increasing, reaching a two-decade high earlier this year, due to at least in part policy choices
Consequently, the cost of meeting basic needs has gone up dramatically, because of this several millions of Nigerians are being pushed into poverty.
The amount the Government spends on critical public services has started declining and has become very low when compared to global standards.
The Government is not able to increase its revenues any longer as it is already amongst the lowest in the world and it is further dwindling. This situation has consequently increased the debt burden of the Federal Government, and the burden of debt servicing is becoming unsustainable.
When we look at the real purpose of the subsidy you will discover that the fuel subsidy is god but it is poorly targeted, largely benefiting the rich.
Available statistics showed that households directly consume only about 25 percent of the fuel that is consumed nationally—the bottom 40%, consume less than 3%—with three-quarters being consumed by firms, Ministries, Department and Agencies( MDAs,) transport operators or smuggled into neighboring countries where the PMS price is between two to three times what it is in Nigeria
Given Nigeria’s fiscal constraints, analysts said the country has a huge opportunity cost, crowding out much needed public expenditures on critical public services and investments in human capital and infrastructure
For the first time in its history and alone amongst major oil exporters, Nigeria’s fiscal position has worsened as global oil prices have more than doubled.
This fiscal realities Nigeria faces in 2023 and perhaps beyond is that the approved 2023 federal budget assumes fuel subsidy will be discontinued after JUNE in line with the (amended) provisions of the Petroleum Industry Act but If this fails to happen the foregone revenues because of fuel subsidies could reach over N5 trillion or about 11 billion at the official exchange rate of between $1to about N800 in 2023
This means that increasing the federal fiscal deficit from an already high N10.7 trillion to nearly N12 trillion
Even if fuel subsidies are removed, that will only stop the bleeding of the budget and financing the federal fiscal deficit will remain a pressing challenge, especially given the difficult global (and domestic) environment, which constrained Nigeria’s ability to meet its financing targets in 2022