Dr. Muda Yusuf, Director of, the Centre for the Promotion of Private Enterprise (CPPE) has said that plan to discontinue petroleum subsidy would unlock a minimum of N6 trillion in revenue into the Federation Account annually.
This was contained in a CPPE report tagged ‘Tweaking the 2023 Finance Bill and Options for Unlocking revenues in 2023 and made available to Nairametrics.
Yusuf noted that the Nigerian economy is heavily burdened and encumbered by two major subsidy regimes: the fuel subsidy regime and the foreign exchange subsidy regime, adding that huge sums of revenue can be unlocked from these subsidy regimes if appropriate reforms are implemented.
He explained that there would be an end to the several years of plundering of the nation’s resources through the subsidy regime.
The task for the next administration and labour unions: According to him, the next administration would need to demonstrate the political will to put an end to this predatory practice.
- “ Meanwhile, CPPE strongly appeals to the labour unions and the civil societies to give the oil and gas sector reforms a chance to prevent the Nigerian economy from tumbling into deeper crisis,” he said.
Foreign exchange policy regime: Yusuf noted that the second major subsidy regime from which huge revenues can be unlocked in the short term is the foreign exchange policy regime.
He said that over the years the exchange rate assumptions in the appropriation acts were grossly and deliberately understated, leading to the loss of trillions of naira to the federation account.
- “In 2021, for instance, the Central Bank sold an estimated $18 billion US dollars as interventions in the foreign exchange market at a hugely subsidized average rate of N400 per dollar. The effective exchange rate in the economy at the time was N560/$. This meant an estimated subsidy of N160/$ which translated to a conservative estimated revenue loss of N2.9 trillion.
- Similarly in 2022, an estimated $18 billion was sold as an intervention in the forex market at an average rate of N447/$. The average effective exchange rate for the period was conservatively about N650. Again, this meant a subsidy of N203/$. This translates to an estimated revenue loss of about N3.64 trillion.
- These are huge losses of revenue to foreign exchange subsidies which are as damaging to the economy as the fuel subsidy. But curiously, the National Assembly and the CBN had serially, grossly and inexplicably underestimated the exchange rate benchmark in the appropriation bills of the past few years. For an economy that is burdened by a huge fiscal deficit and unsustainable debt obligations, this should not be allowed to continue in 2023. The reality is that forex end users are paying well over N700/$ for their business transactions. Selling government forex at less than N500/$ is inexcusable,” Yusuf said.
Realistic exchange rate will boost the federation account: He noted that the exchange rate assumption in the budget should be immediately reviewed to reflect exchange rate realities and boost revenue to the federation account which according to him could be done within the framework of the Finance Act which is, fortunately, being reviewed.
Yusuf said that a realistic exchange rate benchmark would boost the federation account revenues by about N4 trillion in 2023.
According to him, this will not only benefit the federal government but the state and local governments as well.
- “A realistic exchange rate would also improve forex inflows into the economy, enhance the country’s foreign reserves, strengthen the naira and elevate investors’ confidence.
- Currency brokers, middlemen and some operatives in the financial system are the major beneficiaries of the huge arbitrage opportunities, massive rent economy and the vast round-tripping enterprise that the forex subsidy regime has created.
- Unlocking revenues from the forex subsidy would be a significant major step towards the realization of the fiscal consolidation objective of the government. This would also reduce the current tendencies to impose an additional burden of taxation on businesses and moderate macroeconomic headwinds.
- It should be stressed that this is not a devaluation proposition. It is a strategy meant to correct distortions in the forex ecosystem, boost government revenues, curb corruption in forex transactions and enhance liquidity in the forex market. It will also improve efficiency in forex allocation, promote transparency in the forex environment and raise investors’ confidence in the Nigerian economy,” he said.