The Federal Government’s planned withdrawal of the petroleum subsidy is still one of the finest economic moves that can be made to lower Nigeria’s debt and address the pervasive corruption in the oil industry.
The President of the Lagos Chamber of Commerce and Industry (LCCI), Dr Michael Olawale-Cole made this known at the chamber’s second-quarter State of the Economy conference on Tuesday in Lagos.
He noted that Nigeria, which receives subsidies, obtained an $800 million relief package from the World Bank to lessen the impact of subsidy removal on the most vulnerable members of society.
Recent data by the Debt Management Office(DMO) puts Nigeria’s public debt at N46.25 trillion ($103.11 billion) as of end-December 2022, compared to N39.56 trillion ($95.77 billion) in 2021.
Olawale-Cole, however, urged the government to begin to roll out several cushioning measures ahead of the subsidy removal in the second half of the year to mitigate any likely disruptions to the economy.
“Removal of fuel subsidies is, amongst others, expected to spur investments in domestic refining and petrochemicals and create a significant value chain for the various stakeholders.
“Though the planned removal of fuel subsidies may cause further northward movement of inflation in the short term, it is arguably one of the best economic decisions to reduce our unsustainable debts and widespread corruption in that sector.
“The government must, however, take cognizance of its socio-economic implications, especially with unemployment at the unwholesome rate of about 40 per cent,” he said.
The LCCI’s President frowned at borrowing to fund subsidies or support uneconomic ventures, saying that the government’s fixation on debt accumulation was unhealthy.
According to Olawale-Cole, the government must prioritize exploring other avenues, including opening equity opportunities, offloading/selling its real estate holdings, and tackling oil theft to create room for fiscal manipulation.
He stressed the need to importantly follow the recently launched and restructured Ministry of Finance Incorporated (MOFI) by President Muhammadu Buhari on Feb. 1, to optimize national assets.
The LCCI’s president advised that copious references should henceforth be made on the growth and returns of the country’s stock of financial assets in corporate equities, real estate, and infrastructure spaces.
This, he said, would provide local and global observers with a balanced picture of our financial position.
“It would also motivate national asset managers, led by MOFI, to grow our assets and the returns on them as well as motivate our national liability managers, led by the DMO, to minimize our liabilities and the costs we incur on them with equal vigour.
“Indeed, issuance of joint reports by MOFI and DMO would be ideal going forward.
“One-sided updates on liabilities with no updates on assets when such updates were adequately available could well be blamed for some of the downgrades of Nigeria’s debt issuance risk profile and outlook.
“The rating outcomes would have been more favourable, had updates on assets been provided side-by-side with updates about liabilities,” he said.
Addressing inflationary pressure which inched upwards in March to 22.04 per cent, Olawale-Cole noted that hiking the monetary policy rate had thus far proven to be ineffective and insufficient in taming inflation.
He stated that in most economies, amid the cost-of-living crisis, the priorities remained to achieve sustained disinflation and reasonable real growth.
“Therefore, there is a clear need for the government to strengthen its support to critical sectors like agriculture, export infrastructure manufacturing, power, energy, and insecurity.
“Government should also look at ways to improve supply chains as well as cushioning the cost of production by assisting manufacturers with subsidized inputs and foreign exchange allocation.
“While the Central Bank of Nigeria embarks on monetary tightening to tame inflation, it should ensure that targeted concessionary credit to the private sector is sustained for Micro, Small, and Medium Enterprises,” he said.