Govt will withdraw fuel subsidy- Okonjo-Iweala

2011-08-25
THE PUNCH Newspaper- Ifeanyi Onuba

The Federal Government has concluded plans to completely withdraw subsidy on petroleum products, the Minister of Finance, Dr. Ngozi Okonjo-Iweala, has said.

The minister, who said this in Abuja on Wednesday while unveiling her economic blueprint for the nation, however, did not give any timescale for the withdrawal of the subsidies.

“There has been a lot of debate on fuel subsidies and we have all resolved that (removing it) is a good direction to go on. You have to leave it to us to decide when it is prudent to do so,” she told reporters.

The issue of fuel subsidy removal has been contentious over the years with the citizens saying that the removal of subsidies will further impoverish them.

According to the pricing template of the Petroleum Product Pricing Regulatory Agency as at August 15, 2011, the landing cost of a litre of petrol is N129.21; the margin for transporters and marketers is N15.49; the expected pump price is N144.70; while the official pump price is N65.

This means that the Federal Government is paying N79.70 as subsidy on each litre of petrol consumed in the country.

With about 32 million litres of petrol consumed daily across the country, it means the government is paying about N2.6bn as subsidy every day.

Okonjo-Iweala also said on Wednesday said the country must try and reduce recurrent expenditure by at least one per cent yearly for the remainder of the President Goodluck Jonathan’s four-year term.

This will bring down recurrent expenditure to 70 per cent of the budget by 2014.

She said while unveiling her economic blueprint in Abuja that relative to other developing countries, the current recurrent expenditure profile was “unacceptably high at 73.4 per cent of total expenditure,” adding that “the target would be to reduce it by 100 basis point each year so that we can take it to below 70 per cent by 2015.”

“We need to work harder. We need to maintain macro-economic stability. We need to manage our fiscal system in a more prudent manner. We can start with recurrent expenditure,” she said.

The country’s huge recurrent expenditure has been a source of worry to a large number of citizens and even those in government.

For instance, the Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi, had ignited controversy when he said in November last year, “If you look at the budget, the bulk of government spending is recurrent expenditure. That is a big problem; 25 per cent of overheads of Federal Government go to the National Assembly.

“We need power, we need infrastructure, so we need to start looking at the structure of expenditure and making it more consistent with the development initiative of the country.”

On strategies for achieving macroeconomic stability, the minister said efforts would be geared towards achieving fiscal optimisation.

To this end, the minister said she would develop a medium term expenditure framework that would help to reduce fiscal deficit to three per cent by 2012.

Nigeria’s fiscal deficit currently stands at 3.51 per cent of GDP.

On her target for capital projects in the budget, the minister said the country’s capital expenditure, which had been stagnant at 25 per cent of total expenditure, would be raised by 1.5 per cent every year so that by 2015, the capital to total expenditure ratio in the budget would be 30 per cent.

Okonjo-Iweala said the country needed to move away from reliance on oil, reduce public spending, boost job creation and complete infrastructure projects.

“We need to change the budget process in this country. We can’t bring a budget and then have reservations that go back and forth. The executive has its responsibility and I hope the lawmakers will also take responsibility. By 2013 we will have a much saner budget process,” she said.

Okonjo-Iweala’s macroeconomic reforms comprise curbing excessive inflation, which currently stands at 9.4 per cent; growing foreign reserves, which currently stands at $34bn; and growing the country’s Gross Domestic Product from the current 7.8 per cent.

Others are growing Foreign Direct Investment by five per cent; efficient management of the Sovereign Wealth Fund; as well as restoration of the country’s credit ratings.

She warned that the country’s huge domestic debt profile of $34bn was no longer sustainable.

The minister, in an interactive session with journalists in Abuja, said the huge debt profile was worrisome, adding that she would put in place policies that would discourage domestic borrowing.

She said the country’s total debt portfolio of $39.7bn, which was currently 20 per cent of the Gross Domestic Product, was still manageable, adding, that the domestic portion, which was 17.5 per cent of the GDP, must be reduced immediately.

Okonjo-Iweala held the same position between 2003 and 2007 when she successfully secured debt relief for the country from the World Bank/International Monetary Fund.

She said, “We will be paying close attention to the debt situation. I know that many Nigerians are looking at it and are concerned, and everybody knows my stand on debt.

“We have a total debt portfolio $39.7bn, which is about 20 per cent of GDP. I think we are still in very good shape in terms of the percentage of debt to the GDP because most people look at 60 per cent as the point where you start getting worried. If your debt to GDP ratio gets to 60 per cent, then you need to start worrying.”

She added, “But we need to start looking at domestic borrowing because the debt is now high. Of this 20 per cent, 17.5 per cent of GDP is domestic debt. So, our domestic debt stock is about $34bn out of this $39.7bn.

“So, we need to look at our domestic borrowing. It doesn’t mean that because it is domestic, then we can just go out and start borrowing, because we have to service that debt to those who are holding our bonds and treasury bills and we don’t want that to crowd out other expenditure.”

The minister said that the country needed to be prudent by reducing its borrowing, noting, however, that it could not stop borrowing overnight because that would be a shock on the system.

“But we will look through what is the trend overtime and what this administration needs to do to bring this down. Our external debt is not an issue because it is extremely low and it is so concessional, but on domestic debt, I think it needs to be cut down.”

She said that her plans would be to reduce the country’s debt profile which is currently at 20 per cent of GDP to about 16.4 per cent within the nearest future.

On her economic blueprint for the economy, the minister said that working with the National Economic Management Team, the short to medium-term agenda would focus on two key areas – macroeconomic reforms and stability, and structural reforms.

She said the methodology to capture jobs created as well as to evaluate the number of jobs created had been developed, adding that investments would be done in eight key sectors of the economy to achieve this.

The sectors are security, infrastructure, agriculture, manufacturing, housing and construction, entertainment, education and health.

On structural reforms, the minister said there was the need to strengthen the business regulatory environment, bridge the risk perception gap, accelerate trade, carry out tariff and custom reforms, and phase out petroleum subsidies.

Others are ensuring budget transparency among the three tiers of government, penalising impunity by getting the Economic and Financial Crimes Commission to prosecute three big cases of graft and corruption, as well as improve procurement processes among the three tiers of government.


 

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