Nigeria occasionally borrows money to pay for the importation of Premium Motor Spirit (PMS) also known as petrol as a result of the rising costs of subsidy on the product, the country’s finance and budget minister has revealed.
Zainab Ahmed, who spoke with Arise TV in Davos at the venue of the ongoing World Economic Forum (WEF) said the country’s foreign exchange reserves were strong enough to withstand any shocks despite acknowledging that there was a chance of a global economic recession this year.
Ahmed reiterated his commitment to ending the fuel subsidy regime but added that the current administration would do so gradually beginning in the second quarter of this year.
She stated that the government would be able to increase revenue performance over the 2022 figure while also lowering the debt service to revenue ratio.
“We also have to exit fuel subsidy, because that is also a very significant contributory factor. You can look at it in two ways – it is revenue that would have come to the government but it doesn’t because it has been spent on fuel subsidy,” she said.
The minister went on to say, “However, because there is nothing for the government to buy refined petroleum products, we must borrow to do so. So taking that out, which is about N3.25 trillion, is a significant relief.”
Explaining why the fuel subsidy was not removed in June 2022, despite the government’s plan to do so at the time, Ahmed stated that it was a decision made by the government due to the lingering effects of the COVID- 19 pandemic and increased inflation.
“Removal of fuel subsidy at that time would have increased the burden on the citizens, and the President does not want to contemplate a situation where measures are taken that further burdens the citizenry,” she stated.
“So the decision was to extend the period from June 2022 to 18 months, beginning from January 2022. So in June 2023, we should be able to exit. The good thing is that we hear a consistent message that everybody is saying this thing needs to go and that it is not serving the majority of Nigerians.
“I listened to some of the new leaders campaigning for the next round of leadership in the country and they are saying they will get rid of it very quickly,” the minister said.
Asked whether it would be possible to halt the fuel subsidy regime in June this year, Ahmed replied, “What will be safer is for the current administration, maybe at the beginning of the second quarter, to start removing the fuel subsidy.”
This, she said, was because the gradual removal of subsidy would not be so harsh, as when removed at once.
“The idea for us in the budget is that the cost of subsidy should not exceed that N3.23 trillion. So whether it is done completely by June or July or whatever is the process, the cost is capped,” Ahmed stated.
She also stated that the Federal Government’s ambitious N10 trillion revenue target, as projected in the 2023 budget, would be met as a result of various measures put in place.