How FG Saved N8tn from Subsidy Removal and FX Reform

Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, has stated that the removal of fuel subsidies and exchange rate unification measures will result in an annual savings of N8 trillion for the federal government.

Oyedele spoke during a panel discussion at the Lagos Chamber of Commerce and Industry’s 2024 Economic Outlook and Budget Analysis.

He consequently stated that it was vital for the government to invest the money saved by the two programs to alleviate the suffering of the average Nigerian.

He said, “The Nigerian people made sacrifices as a result of the fuel subsidy removal of the government; that is N4tn savings a year. We did naira floatation. It is not perfect. We are also saving another N4tn. So we are having about roughly N8tn transferred from the private pockets of the people to the government.

“So, what we are saying to the government is — can we be intentional in spending this N8tn to make sure that it impacts the people most positively? Starting with the multidimensional poverty. why is it that more than 133 million people in Nigeria are living in multidimensional poverty? So these are the conversations we are having now. We want to build a platform where we can track how these monies are being spent.”

He added, “In the committee, we tried to look at the most pressing issues we face as a country — inflation, forex instability, lack of investments. One of our recommendations is for the government to suspend some taxes. We call them nuisance taxes because they frustrate people, and we can’t even see the money in government treasury.”

According to Oyedele, there is an urgent need to provide digital possibilities for Nigeria’s burgeoning youth population, since the technology sector has the potential to generate $20 billion each year.

Oyedele hinted at some of the panel’s recommendations to the Federal Government, saying there was an urgent need to encourage exports, particularly services and intellectual property, since, “Before you start exporting goods, you can export services and intangibles.”

He further stated that of the $20 billion in diaspora remittances recorded in 2023, more than 90% did not arrive in Nigeria in foreign currencies due to existing loopholes that allow middlemen to redirect the monies and pay the receivers in naira.

He added. “For example, just asking Nigerian companies and businesses to pay taxes in dollars is about $3.5bn annually, but we sat and thought about it, and wondered how the idea came about.

“How does it help us, that a Nigerian company will go to the market to go and look for the little dollars that is in Nigeria so it can use it to pay the government of Nigeria? So, just amend the law and you will take that pressure away.”

Also speaking, Ben Akabueze, Director General of the Budget Office, voiced concern that the country’s preference for operational budgets with capacity for deficit during the last three decades has resulted in a worrying debt profile.

Akabueze said, “In our current circumstance, we believe that our biggest fiscal challenge is raising public revenues. That is, the low public revenues against the background of the ever-increasing demand for public goods and services.

“For over two decades, we have been running deficit in our budget. These deficits have accumulated. They have been funded through debt consistently. The truth is that we haven’t paid back the debt. Now we are at a point where there are concerns about our debt. So we can’t continue with the deficit. The deficit for the 2024 budget is about 3.8 per cent of our GDP.”

Speaking further, Akabueze denied complaints of the government’s excessive spending.

He highlighted that Nigeria was not spending enough, and that the emphasis should be on effective spending rather than less spending.

He added, “Sometimes people ask — why don’t you cut expenditure? That’s not a feasible option. In the first place, we are not spending enough. If you look at our public expenditure to GDP ratio, it is below what it should be. So, spending less is not an option for us. Spending more efficiently — yes.”

Bismarck Rewane, Chief Executive Officer of Financial Derivatives, stated that significant economic concerns continue to plague Nigeria’s economy.

These issues, he claims, include suboptimal and inequitable growth, rising income inequality, high poverty and unemployment rates, spiraling inflation, widening budget imbalances, and currency pressures.

He also stated that Nigeria’s inflation rate continues to rise, owing primarily to monetary and cost-push factors.

He said external debt service to export ratio shows the external sector is vulnerable.

Rewane further blamed the country’s long-running FX issue on a lack of transparency and clear policy direction, a lack of effective price discovery measures, capital controls and inefficiency, and excessive speculation/arbitrage activity.

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