Key Points
- Nigeria has spent N25 trillion on fuel subsidy over the past 14 years.
- The subsidy amount could have been used for:
- Building another refinery like the Dangote refinery.
- Constructing 500,000-bed hospitals.
- Establishing 150,000 classroom universities.
- Developing 12,000 kilometres of roads.
- The fiscal policy has been expansionary, contradicting the Central Bank of Nigeria’s monetary tightening measures to curb inflation.
- Despite government claims, close to N6 trillion is being spent on fuel subsidies this year.
Nigeria has spent an astounding N25 trillion on fuel subsidies over the past 14 years, according to Esili Eigbe, Economist and Director at Escap Management. This massive expenditure, Eigbe notes, represents a significant financial burden on the nation and a monumental missed opportunity for critical infrastructure development.
In an interview on Wednesday on Arise TV’s The Morning Show, monitored by Arbiterz, Eigbe laid bare the extent of this financial strain: “Cumulatively over the last 14 years, we have spent about N25 trillion on subsidy. That’s the equivalent of another Dangote refinery of about 650,000 barrels a day. That’s the equivalent of about 500,000-bed hospitals, 150,000 classroom universities, or 12,000 kilometres of road—about 10 per cent of what we currently have.”
Subsidy vs. Infrastructure
The economist underscored how this enormous sum could have been better utilised. By drawing comparisons, he highlighted the critical infrastructure that could have been developed with the N25 trillion spent on subsidies:
- Healthcare: “We could have built 500,000-bed hospitals,” Eigbe said, stressing the dire need for improved healthcare facilities across the country.
- Education: “150,000 classroom universities” could have transformed the educational landscape, providing better learning environments for millions of students.
- Transportation: “12,000 kilometres of road—about 10 per cent of what we currently have” would significantly improve connectivity and boost economic activities.
These comparisons starkly illustrate the opportunity costs associated with the subsidy regime, painting a picture of what Nigeria might have achieved had these funds been directed towards sustainable development.
Economic Contradictions
Eigbe also discussed the contradictory nature of Nigeria’s fiscal policies. While the Central Bank of Nigeria (CBN) has been implementing monetary tightening policies to curb inflation, the fiscal side has been more expansionary.
“The fiscal side has been actually counteractive to what the central bank has been doing, which is contradictory, in the sense that they’ve been more expansionary,” he explained.
This lack of coordination between fiscal and monetary policies, Eigbe argued, exacerbates the economic challenges facing the country.
Also Read: Government Can No Longer Fund Subsidy – Mele Kyari, GMD of NNPCL
The government’s excessive borrowing, he noted, mirrors the emergency measures taken during the COVID-19 pandemic, even though the current economic context does not justify such an approach.
Debt Crisis Looming
One of the most pressing issues highlighted by Eigbe is Nigeria’s soaring debt. Over the past decade, the country’s debt has grown by about 18 per cent per annum, currently standing at approximately N118 trillion and expected to reach around N150 trillion by the end of the year.
“Possibly somewhere close to about N200 trillion by the end of 2026,” Eigbe warned, adding, “It’s not sustainable at all.”
The economist emphasised the urgent need for fiscal discipline and a reevaluation of spending priorities.
“We’re sacrificing critical infrastructure for a subsidy that doesn’t make sense,” he asserted. “Subsidy today, we’re spending about almost N6 trillion this year alone.”
Fiscal Discipline and Spending Priorities
Eigbe criticised the government’s lack of fiscal discipline and called for a shift in spending priorities. He proposed practical measures to address the economic challenges, including reducing overall spending by 50 pe cent and focusing on critical infrastructure development.
He also highlighted the inefficiency of short-term solutions such as distributing bags of rice to combat poverty. Instead, he suggested direct cash transfers as a more effective alternative, providing immediate relief to the most vulnerable populations.
Government’s Stance on Subsidies
When questioned about the government’s insistence that there is no fuel subsidy, Eigbe responded, “I think that would be a question for the government. But I’m just telling you a fact: we will spend close to N6 trillion on fuel subsidy this year, based on what we have seen so far.”
This discrepancy between the government’s official stance and the actual expenditure on subsidies raises questions about transparency and accountability in fiscal policy.
The Road to Recovery
Eigbe painted a bleak picture of Nigeria’s economic future if immediate and decisive actions are not taken. He urged the government to embrace austerity measures and improve fiscal discipline to avoid a potential downgrade of the country’s credit rating, a weak economy, and possibly a recession.
“The road to recovery or even really supporting the most vulnerable, is a very difficult one. The government is broke,” Eigbe noted. “They are borrowing to subsidise fuel, which is at N6 trillion at the end of this year, while spending on healthcare is only N3,500 per capita.”
Impact on Vulnerable Populations
The economist’s analysis underscores the disproportionate impact of fiscal mismanagement on Nigeria’s most vulnerable populations. The government’s current spending priorities, he argued, fail to address the fundamental needs of the populace.
“Subsidies, in theory, are meant to alleviate the financial burden on citizens,” Eigbe explained. “But in practice, they often benefit the wealthier segments of society more than the poor.”
This misallocation of resources, he suggested, exacerbates inequality and hinders efforts to reduce poverty.
By redirecting funds towards critical infrastructure and targeted social programmes, the government could achieve more equitable and sustainable economic growth.
Austerity Measures
Eigbe called for the implementation of austerity measures to stabilise the economy. This would involve cutting non-essential expenditures, reducing public sector wages, and eliminating wasteful subsidies.
“We’re at the cost of a debt crisis, with excess borrowing as though we’re still in the COVID era,” he warned.
Such measures, though painful in the short term, are necessary to restore fiscal balance and create a foundation for long-term economic stability. Eigbe also emphasised the importance of transparency and accountability in the implementation of these measures, to ensure that the burden is shared equitably and that the most vulnerable populations are protected.
The Role of International Community
The economist also highlighted the role of the international community in supporting Nigeria’s economic recovery. He called for greater engagement with international financial institutions to secure favourable terms for debt restructuring and access to concessional financing.
“International support is crucial,” Eigbe stated. “But it must be accompanied by domestic reforms. The international community can provide financial assistance and technical expertise, but ultimately, the responsibility for implementing these reforms lies with the Nigerian government.”
Eigbe’s analysis paints a stark picture of the challenges facing Nigeria’s economy. The massive expenditure on fuel subsidies, the looming debt crisis, and the lack of fiscal discipline all point to an urgent need for a strategic shift in spending priorities.
By redirecting funds towards critical infrastructure development and implementing austerity measures, Nigeria can lay the foundation for a more sustainable and prosperous future. The government’s commitment to transparency, accountability, and fiscal discipline will be crucial in achieving these goals.
As Nigeria grapples with these economic challenges, Eigbe’s insights provide a roadmap for policymakers to navigate the path to recovery. The decisions made today will shape the country’s economic future for generations to come.
