By Muyiwa Lucas, Okwy lroegbu-Chikezie and Collins Nweze
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National Assembly revises Medium Term Expenditure Framework
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Police get additional N182b for salaries
The economy will be negatively impacted by the N4trillion vote for petrol subsidy in the revised 2022 budget passed yesterday by the National Assembly, experts have said.
The lawmakers acceded to President Muhammadu Buhari’s request for adjustments to the 2022 fiscal framework.
They approved a revised budget of over N17 trillion for this fiscal year with a provision of N4trillion for petrol subsidy.
The police got an increase of N182 billion to take care of salaries.
The size of the 2022 budget was increased to N17,319,704,091,019 from an initial N17,126,873,917,692.
The Medium Term Expenditure Framework was revised as requested by the President.
The Centre for the Promotion of Private Enterprise Chief Executive, Dr. Muda Yusuf, is concerned about the country’s macroeconomic outlook in the near term.
He said: “The outcome of these approvals include increased borrowing, higher debt service, surge in fiscal deficit, heightening inflationary pressure and a risk of further depreciation in the naira exchange rate.”
He said infrastructure financing might be negatively impacted as recurrent expenditure increases sharply.
He added: “The combination of debt service and petrol subsidy is likely to consume the entire revenue.
“We should brace for more challenging times. Major reforms necessary to return the economy to a recovery and growth path are unlikely to happen in the near term.
“This is coupled with the distractions that come with electioneering and transition periods.”
The National Operations Controller of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mike Osatuyi, said the N4 trillion subsidy “is child’s play because we are still heading to a N6 trillion subsidy regime by year-end”.
He added: “If the international crude oil price continues to be at this price or goes higher, then we will have to pay more subsidy.
“Even now, the N4 trillion subsidy they are talking about is calculated at CBN’s official exchange rate of N417/dollar; it is not at N580/dollar. Look, part two of the subsidy increase will still come by August / September.
“It is sad that we are paying N4 trillion on subsidy, another N4 trillion on debt servicing and yet another N4 trillion on salary and expenses.
“Deregulation of petrol is the best, but if that is done, can Nigerians buy petrol at N500/litre?.
“At present, the country is at a crossroads on this subject.
“The Petroleum Industry Act (PIA) has been suspended for 18 months, so we cannot talk about PIA now.
“It means NNPC will keep deducting subsidy at source because they are the sole importer of petrol and so we have to play by their rules.”
The Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Clement Isong, said the subsidy increase was the government’s response to the mood of Nigerians.
“People are struggling. The Russia/Ukraine war has increased prices globally and everybody is going through a particularly strenuous time.
“The government in its wisdom has decided to do what it feels best to push through these difficulties, and it’s fully aware of the cost of the decision it has made.
“It has passed through the National Assembly, so it’s a decision the country has made and we all have to live and abide by that decision.
“There will be consequences, but we just hope that we will be able to bear the consequences down the line.
“We are currently borrowing to fund the subsidy. It’s a very tough call to make and I empathise with the government.
“As a country, collectively, we must find our way to climb out of the situation we have found ourselves.
“The people of Nigeria must encourage the government to make the tough decision to climb out of this situation because if you continue to spend more than you make then you are heading back into poverty.
“And we are already in a challenging position concerning poverty and if we continue to borrow and spend, not on investment but consumption, then we are heading deeper and deeper into poverty. At some point in time, we need to as a country say enough.
“We have refineries but they are not functioning because we have price ceilings that were too low to allow us to maintain the refineries efficiently.
“It’s not just the refineries that are down, the pipelines too are down, the depots are down, all the country’s oil distribution infrastructure is in a very poor state because of cheap petrol at the pump.
“The petrol at the pump needs to pay for this maintenance of those items. All petroleum products are moved across the country now by road, degrading the roads further.”
Deputy President, Lagos Chamber of Commerce and Industry (LCCI), Gabriel Idahosa, lamented that the capacity to grow through capital expenditure was already eroded by the existing deficit which has led to rising inflation without growth.
He said this move would lead to rising unemployment since only sustained growth can drive surges in employment.
He said: “It also means we will continue to subsidise petrol prices in our neighbouring countries.”
Forex Trading Desk Manager, AZA, Murega Mungai, said the naira has continued to fall after the N4 trillion subsidy payment was announced. ”The Naira slid to a fresh record low against the dollar on the unofficial market this week, depreciating to 589 from 587 at last week’s close.”
Also, Analysts at Agusto & Co, an investment and research firm, said political expedience means Nigeria’s economic reform momentum has been somewhat disrupted and subsidies on the premium motor spirit (PMS) will remain, at least until mid-2023 when it will be the burden of the next administration.
In its report to investors, it said that recent events have put the subsidy debate back on the front burner.
In the first quarter of 2021, global crude oil prices averaged $102.97 per barrel (pb), on the back of heightened geopolitical tensions, which culminated in Russia’s invasion of Ukraine.
“However, Nigeria is unable to maximise the fiscal benefits from what should ordinarily be an oil windfall as vandalism, ageing infrastructure and inadequate investments in oil fields continue to ensure that output remains significantly below the country’s OPEC quota (1.8mbpd).
“So, while revenues are expected to rise, subsidies are expected to absorb a significant portion of it,” it said.
According to the Nigeria National Petroleum Corporation (NNPC), Nigeria spent N1.4 trillion on petrol subsidies in 2021 while N4 trillion is expected to be expended in the 2022 fiscal year.
Agusto & Co said the threefold increase in subsidy will further widen the fiscal deficit and increase the debt burden.
As of December 2021, Nigeria’s total debt stock stood at N39.5 trillion ($95.76 billion) and the Federal government is expected to borrow another N8 trillion in 2022 to augment its spending.
It was projected that the debt service to revenue ratio will rise further to 94 per cent.
Market pricing is crucial to the deregulation of Nigeria’s downstream oil industry and is essential to the viability of the new profit-oriented state oil company “NNPC Limited” as currently configured in the PIA.
Agusto & Co said price liberalisation was crucial to attracting investments in local petroleum refining, which considering the fuel shortages Nigerians have experienced recently, is consistent with Nigeria’s energy security objectives.
“Domestic refining will eliminate fuel imports which accounted for approximately 20 per cent of forex demand in 2021 according to the Central Bank of Nigeria (CBN).
“This significant reduction in forex demand pressure is positive for the fortunes of other forex-dependent sectors such as manufacturing and trade,” it said.
It said deregulation of the premium motor spirit (PMS) market has been proposed as the way out of the subsidy debacle.
