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Home Macro Monday

Fuel Subsidies: Are They Helping the Poor or a Drain on the National Budget?

by Joan Aimuengheuwa
May 7, 2024
in Macro Monday
2
Fuel Subsidies: Are They Helping the Poor or a Drain on the National Budget?
Source: Techeconomy

Source: Techeconomy

UBA
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President Bola Tinubu, on Sunday, justified the fuel subsidy removal, stating that it is a necessity to ensure the Nigerian economy escapes bankruptcy.

This, he said at the ongoing World Economic Forum in Riyadh, Saudi Arabia, where he was one of the panellists. 

The issue of fuel subsidy removal has obvious impacts on citizens. While the long-term benefits of a healthier economy are undoubted, the immediate challenges require careful consideration.

I’m sure several people are having similar thoughts as I am — the negative outweighs the positive right now, will the table ever turn?

Over the past 18 years, Nigeria has spent more than $30 billion on fuel subsidies. This expenditure has impacted funding for areas like education, healthcare, and infrastructure. 

While the intention was to ease the burden on the population, statistics show that wealthier households actually benefit more from these subsidies due to higher fuel consumption. This means the government is spending money that could be better targeted to support low-income Nigerians.

But then again, the recent price increase has impacted Nigerians, particularly those living in poverty — approximately 133 million. Transportation expenses, a major strain on low-income budgets, have risen sharply. This has limited access to work, healthcare, and essential services, further worsening their situation.

Here’s something else the President said that got me pondering over the economic hardship hindering several youths despite being ‘vibrant’ and ‘ready for technology’:  “Luckily, we have a very vibrant youthful population interested in discoveries by themselves and they are highly ready for technology, good education committed to growth. We are able to manage that and partition the economic drawback and the fallout of subsidy removal.”

Yes, there are free training made available, but the factors that limit vibrant youth despite being ready to take hold of their future are numerous. 

The two major issues are unstable electricity supply, which can disrupt online learning as well as working, and limited access to affordable internet hindering access to educational resources and connecting with mentors or collaborators. 

Let’s not forget the high costs for those without access to free training — even some free training are paid for when it comes to the advanced or pro learning.

Transportation expenses, a significant chunk of a low-income household’s budget, have risen so steeply, leading to difficulty getting to work, limitations on accessing essential healthcare services, and even challenges running everyday errands. 

The impact doesn’t stop there because fuel is the lifeblood of transporting goods across the country. With its price increase, a domino effect takes hold. Food, medicine, and other necessities have become more expensive, further squeezing already limited household budgets. 

The situation becomes even more concerning if the freed-up funds from subsidy removal aren’t efficiently directed towards social programs that could act as a buffer for the poor during this economic transition.

Though the President admitted that the hallmark of leadership involves taking difficult decisions at the time it ought to be taken decisively, and highlighting the awareness of the vulnerable being affected, the issue remains worrisome.

Not to be one-sided, let’s see how fuel subsidy drains the national budget:

Reduced government revenue: When the government sells fuel below market price, it forgoes the potential tax revenue it could collect on those sales. 

This reduces the amount of money available for funding public services like education, healthcare, and infrastructure.

Higher budget deficits: The cost of subsidizing fuel can create a budget deficit, where spending exceeds revenue. This can lead to increased government borrowing, which can burden the economy in the long term.

Inefficient allocation of resources: Subsidies often benefit wealthier households more than poorer ones, as wealthier households tend to consume more fuel. This means that the government is spending money that could be better targeted to help low-income Nigerians.

Discourages investment in renewable energy: In keeping fuel prices artificially low, subsidies discourage investment in renewable energy sources like solar or wind power. This can slow down the country’s progress towards a more sustainable energy future.

So, the big question is — How can Nigeria find a balance? 

Tinubu said that the removal of fuel subsidy has undeniably reinforced accountability, transparency, and physical discipline for the entire nation. We hope to get a clearer view of this. 

He strongly believes that it is important to prioritize the direction in which the country should move forward.

In my opinion one of the ways to move forward is filling the missing gap:

  1. Targeted Social Safety Nets

This could include subsidized public transportation for low-income individuals, but right now, even the train is not cheap.

  1. Progressive Taxation

Enhance progressive taxation measures to ensure that the burden of funding essential services and programs does not disproportionately fall on the poor. 

Implementing fair and equitable tax policies can help generate revenue while minimizing the impact on those with lower incomes.

  1. Efficiency in Government Spending

Improve transparency and efficiency in government spending to optimize the allocation of resources. In reducing wastage and corruption, more funds can be directed towards social programs aimed at mitigating the impact of subsidy removal.

  1. Investment in Infrastructure

Channel savings from fuel subsidy removal towards investments in infrastructure such as healthcare, education, and public transportation. 

Improving infrastructure can enhance overall economic productivity and create employment opportunities, benefiting all segments of society.

  1. Diversification of Revenue Sources 

Come up with alternative revenue sources beyond oil exports to reduce dependency on volatile commodity prices. 

Developing non-oil sectors such as agriculture, manufacturing, and technology can generate sustainable revenue streams and reduce fiscal vulnerability.

  1. Consultation and Stakeholder Engagement 

Facilitate inclusive dialogue with civil society organizations, community leaders, and affected stakeholders to better understand the diverse impacts of subsidy removal. 

Engaging with stakeholders can inform policy decisions and ensure that interventions are directed to meet specific needs.

  1. Long-term Economic Planning

Adopt a comprehensive long-term economic strategy that balances fiscal discipline with social inclusion. 

Setting objectives and potential achievements can guide policy implementation and ensure sustained progress towards economic stability and poverty alleviation.

Need I say more? Let’s hear from you!

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Author

  • Joan Aimuengheuwa
    Joan Aimuengheuwa

    Joan thrives at helping individuals and businesses scale via storytelling...

    View all posts
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Tags: economic planningFuel SubsidyGovernment revenueNational BudgetPresident Bola TinubuWorld Economic Forum
Joan Aimuengheuwa

Joan Aimuengheuwa

Joan thrives at helping individuals and businesses scale via storytelling...

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  1. Pingback: NNPCL Targets May 1 to End Fuel Scarcity, Queues - Tech | Business | Economy
  2. Pingback: NNPC SETS MAY 1st DEADLINE TO END FUEL CRISIS - Statistics

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