Petrol subsidy removal will unlock over N11tr, says Muda Yusuf

• Published date: 16 January 2023
• Publication title: Nigeria - The Nation

Unlocking revenues from foreign exchange (forex) and petrol subsidies will be a major step towards the realisation of fiscal consolidation objective of the Federal Government, the Managing Director and Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, has said.

The economist said such move 'would also reduce the current tendencies to impose additional burden of taxation on businesses and moderate macroeconomic headwinds'.

Yusuf, who stated this while speaking with The Nation, warned that the nation's economy is heavily burdened and encumbered by these two major subsidy regimes: the fuel subsidy regime and the foreign exchange subsidy regime.

The managing director noted that huge sums of revenue could be unlocked from these subsidy regimes, if appropriate reforms were implemented.

According to him, the Federal Government's plan to discontinue petroleum subsidy, which he described as a positive development, would fetch a minimum of N6 trillion revenue into the Federation Account annually.

Additionally, he said there would be an end to the several years of plundering the nation's resources through the subsidy regime.

Yusuf said the second major subsidy regime from which huge revenues could be unlocked in the short term is the foreign exchange policy regime.

Over the years, the economist noted, the exchange rate assumptions in the Appropriation Acts were grossly and deliberately understated, leading to loss of trillions of naira to the federation account.

In 2021, for instance, The CPPE helmsman recalled that the Central Bank of Nigeria (CBN) sold an estimated $18 billion as interventions in the foreign exchange market at a hugely subsidised average rate of N400 per dollar, when the effective exchange rate in the economy at the time was N560 to a dollar.

This meant an estimated subsidy of N160 per dollar, translating to a conservative estimated revenue loss of N2.9 trillion.

Similarly in 2022, Yusuf said an estimated $18 billion was sold as intervention in the forex market at an average rate of N447 per dollar, whereas the average effective exchange rate for the period was conservatively about N650.

Again, this meant a subsidy of N203 per dollar, translating to an estimated revenue loss of about N3.64 trillion.

'These are huge loses of revenue to foreign exchange subsidy which are as damaging to the economy as the fuel subsidy. But curiously, the National...