2019 Budget and The Subsidy Question

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The subsidy regime is not a good option. It is a drain on scarce resources

Hardly had President Muhammadu Buhari presented the 2019 appropriation bill to the National Assembly last Wednesday with a projected oil production volume of 2.3 million barrels per day than the Organisation of Petroleum Exporting Countries (OPEC) announced a further cut on Nigeria’s quota production for the first half of next year to 1.685 million barrels per day. With the projected price in the bill also pegged at $60 per barrel at a period Brent is selling for less, it is obvious that there are serious problems with the assumptions upon which the 2019 budget was based. Unfortunately, the discussions around the budget are not about these fundamentals but rather about the fact that the president was booed by some lawmakers during the presentation.

Meanwhile, there are a number of other disturbing issues surrounding the budget bill that should engender the engagement of critical stakeholders. One, it was presented barely a few days to the end of the year and just 24 hours before the adjournment of both chambers for the Christmas and New Year break. Two, with the general election coming up in February and March, it is safe to conclude that work on the budget may not start in the National Assembly until April next year. Three, and most importantly, after circumventing the law under the pretext that the “NNPC is trading in fuel, the federal government is not paying for any subsidy”, President Buhari has finally earmarked money for the payment of fuel subsidy in the 2019 budget.

While we commend the administration for finally toeing the path of constitutionalism on the issue, we are quick to insist that voting a whopping sum of N305 billion to service the consumption of one single item is not only unsustainable but also antithetical to the development of any nation. As we have consistently stated on this issue, there are several compelling arguments for ending the regime of subsidy that has over the years become inefficient and dysfunctional. Even when subsidies might be necessary as a way of achieving some strategic economic objectives beyond the remit of the market, they have to be targeted and must be effectively implemented. This one unfortunately does not meet either of the criteria because it harms rather than help the people.

All factors considered, the subsidy regime is a huge drain on scarce resources that the nation can ill-afford especially at this period. It is also difficult to justify for an administration that came in with the agenda to fight corruption. In June 2014, the Federation Accounts Allocation Committee (FAAC) urged the Senate to cancel the subsidy because it is “a fraud against the country”. But in defence of rejecting the proposal at the time, the then Senate President, David Mark said: “If we sit here now and say remove fuel subsidy, I think that those who are benefiting from subsidy are very powerful and tomorrow they would influence media reports and create the impression that the Senate is anti-people”.

We agree with the FAAC that there is no justification for the retention of the subsidy regime. But the argument given by the Senate is precisely the reason why every government in the country dithers on the decision that appears to be the most sensible in the circumstance. What President Buhari and his administration must therefore realise is that as long as the subsidy remains, the incentive for private and public actors to game the system will continue to be there.

Indeed, the report of the Nuhu Ribadu-led Petroleum Revenue Special Task Force (PRSTF) submitted to President Goodluck Jonathan in 2012 highlighted the institutional challenges that impede our ability to derive the maximum benefit from the oil and gas sector. According to the committee’s findings, the Nigerian National Petroleum Corporation (NNPC) is being run like a slush fund rather than as a business enterprise. For the sector to be accountable, transparent and efficient, the only sure way to doing that is total deregulation.