The Federal Government has acknowledged that due to the nation’s escalating fuel subsidy costs, it occasionally borrows money to pay for gasoline.
The administration maintained that Nigeria’s foreign exchange reserves were strong enough to withstand any shocks despite acknowledging that there was a chance of a worldwide economic recession this year.
This information was provided by Zainab Ahmed, the Minister of Finance, Budget, and National Planning, during an interview with Arise TV on Tuesday, just before the World Economic Forum in Davos.
The minister also mentioned that the Federal Government occasionally had to borrow money to purchase Premium Motor Spirit, more commonly known as gasoline, despite the significant subsidies spent on the good. This interview was observed by our correspondent in Abuja.
Ahmed reiterated his call for the regime of gasoline subsidies to stop, but said that the present administration will do so gradually beginning in the second quarter of this year.
She claimed that the government will be able to improve revenue performance compared to the 2022 estimate and lower the revenue to debt service ratio.
Fuel subsidies must go as well because they are a major contributing factor. You can look at it in two ways: either way, the money was revenue that should have gone to the government but doesn’t now that it has been used for gasoline subsidies, the woman remarked.
The minister said, “But also, in cases where the government is unable to purchase refined petroleum products, we must borrow money in order to do so. Therefore, removing that would be a huge relief and would amount to around N3.25 trillion.
Ahmed explained that the government decided against ending the fuel subsidy in June 2022 despite having planned to do so at the time because of the COVID-19 pandemic’s continued effects and the rise in prices.
She said, “Removing the fuel subsidy at that time would have exacerbated the burden on the people, and the President does not want to imagine a situation where actions are implemented that burden the people even more.”
So the decision was made to extend the time from June 2022 to 18 months, starting in January 2022, Ahmed continued. We should therefore be able to leave in June 2023. The good news is that we consistently hear that this policy has to change since it is not in the best interests of most Nigerians.
“I’ve been listening to some of the new leaders running for the country’s next round of leadership, and they’re promising to get rid of it very quickly,” one of them said.
When asked if it would be possible to end the fuel subsidy program in June of this year, Ahmed responded, “What will be safer is for the current administration to start eliminating the fuel subsidy, maybe at the beginning of the second quarter.”
She said that this was because subsidy elimination would be more gentle if done gradually rather than abruptly.
“We believe that the cost of subsidies should not be higher than N3.23 trillion in the budget. Therefore, the cost is capped, Ahmed said, regardless of whether the procedure is completed in full by June, July, or another date.
this year’s recession
She added that, thanks to a number of measures already in place, the Federal Government would be able to meet its ambitious N10 trillion revenue target, which was anticipated in the budget for 2023.
She remarked, in response to the potential for a worldwide economic downturn, “Clearly there is going to be a drop in growth. And the reason for this fall in growth is the COVID-19 pandemic’s long-lasting effects on the economy.
“We have observed the revival of COVID-19 in certain developed economies, particularly China, as well as the global effects of the Russia-Ukraine conflict.
“The quantitative easing that central banks around the world are implementing also contributes to the high cost of interest, which results in the high inflation rate and weakens people’s purchasing power. Therefore, all of them point to the impending worldwide recession.
The minister was made aware that Nigeria had more than $60 billion in foreign exchange reserves in 2008, which allowed the nation to weather the effects of the global crisis.
Ahmed responded in the positive when asked if the nation could survive another recession this year based on its present reserves.
That was our reserve during the first global recession, she acknowledged. Our reserves are at $34 billion, which is still a healthy amount. It indicates that we have enough money to cover imports and other country expenses for at least six months.
If we can implement a coordinated response between the monetary, fiscal, and trade authorities, it suggests we can endure another global crisis. The COVID experience has taught us a lot, and it demonstrates that when we plan effectively, we can truly survive shocks.
You may recall that Nigeria’s economy did experience a recession during the COVID, but it was only temporary because to the coordinated effort that involved not just the government but also the business sector.
Additionally, she continued, “At that time, we were able to reduce several categories of government spending so that we could increase our investments in the healthcare sector. Therefore, we can survive another global recession with the appropriate measures.
Revenue forecast of N10 trillion
Ahmed responded to criticisms that the Federal Government’s forecast of over N10 trillion in income by 2023 was overly optimistic by saying that numerous initiatives were underway to achieve this goal.
“If you look at the facts, the performance of the 2022 budget, you will see that the oil and gas sector contribution was roughly 35%, while the non-oil sector made the highest contribution,” she remarked.
In addition, the contribution from the non-oil sector performed significantly better than expected. For instance, company income tax exceeded expectations by 158%.
Therefore, several fundamental steps that have been done have allowed the non-oil sector revenue to increase consistently, not just by a small amount but by a sizeable amount.
Ahmed added that it appeared likely that the oil sector’s contribution, which was little in 2022, will increase in 2023.
“The government’s actions, a result of the efforts of the security and intelligence services, have improved output in the oil and gas industry, and it looks like it would continue,” she said.
“Most of the fields that were previously unable to produce at the levels that they were expected to can now produce at their highest levels,” the minister continued. Additionally, the price of oil is still quite high on the global market.
“We are also making significant efforts to promote gas investment in order to obtain supplemental revenue streams from that industry. We ought to be able to meet this, then. Additionally, we’ve added additional new taxes and excise levies, the full impact of which won’t be apparent until 2023.
When asked if Nigeria will be able to experience economic growth this year, Ahmed responded that the nation must do so in 2023 given that the ratio of debt service to revenue in 2022 was around 80% and that there was a deficit of more than N10 trillion for 2023.
There may be, there should be, and in actuality there has to be, she said. We must increase our revenue in order to better our revenue to debt service ratio. Once more, we had to take out loans in order to fund infrastructure improvements.
“We had an infrastructure stock of roughly 22% when this administration began; we’ve been able to increase it to 35%. These are the investments necessary for the economy to thrive sustainably.
