The federal government’s removal of the fuel subsidy has sparked debate about its effects on the country’s finances.
The recent fuel hike has many Nigerians thinking if the government removed the subsidy, there should be an upturn in the economic development of the country.
One side argues that removing fuel subsidies reduces the debt burden and does not help, while others believe it should automatically boost government revenue.
Subsidy: From Debt to Savings
Fuel subsidies in Nigeria have long been a source of financial burden for the government. In the past, cash was paid out as subsidies to keep prices low.
However, as time progressed, these subsidies began to weigh heavily on an already debt-laden government. Instead of direct cash payments, the subsidy turned into debt, with the government subsidising fuel prices through borrowing.
Consequently, removing the subsidies merely reduces the rate at which the country’s debt accumulates rather than adding immediate revenue to government funds.
Debating Debt Reduction
Those who advocate for subsidy removal often argue that it allows for better fiscal responsibility. By reducing the rate of debt accumulation, the government has more room to stabilize its finances.
However, this doesn’t mean that the removal leads to a direct infusion of cash for development purposes. It may free up future resources but doesn’t provide an instant revenue boost.
Nigeria has a history of using subsidy removal as motivation for developmental programs, though with varying levels of success.
In the 1990s, when General Sani Abacha removed fuel subsidies, he launched the Petroleum Trust Fund (PTF). The idea was to use savings from the subsidy removal for infrastructure projects, including road construction and education. While controversial, the PTF did fund a number of projects during its existence.
In 2012, President Goodluck Jonathan partially removed the subsidy and created the Subsidy Reinvestment and Empowerment Program (SURE-P). The program aimed to channel the subsidy savings into infrastructure projects and social programs like employment generation and healthcare services.
Although the program had a promising start, reports of mismanagement and corruption eventually marred its reputation.
Tinubu’s Approach: What Has Changed?
With the recent subsidy removal under President Bola Ahmed Tinubu, there have been expectations of a similar post-subsidy program, but so far, no equivalent of PTF or SURE-P has emerged.
While the government has emphasized the potential savings from the subsidy removal, critics argue that it has not been transparent about how these savings will be used to improve the lives of Nigerians. Moreover, the economic impact has been immediate, with a significant rise in fuel prices, increasing the cost of living for many.
This has led to questions: if there is no immediate cash boost from removing the subsidy, and if there is no concrete plan for channeling the savings into specific developmental projects, what exactly is the government’s strategy?
The Economic Impact
Recent reports have shown that fuel prices have more than doubled since the removal of subsidies. For many Nigerians, this has led to increased transportation costs, which in turn affects the prices of goods and services. The immediate reality for the average Nigerian is economic hardship. In this context, questions arise about whether the government has adequately prepared for the economic shock the removal has caused.
Previous examples show that subsidy savings can be directed toward development, but the current administration has yet to unveil a comprehensive plan. Without a clear strategy, the benefits of subsidy removal may remain theoretical for much of the population.
