At Private Enterprise Promotion Center (CPPE) has said that the proposed plan to remove petroleum subsidies will increase the Nigerian government’s revenue by at least N6 trillion annually.
Muda Yusuf, the director of the CPPE, announced on Sunday in a statement titled “Amending the Finance Bill 2023 and Options to Unlock revenues in 2023”.
Mr. Yusuf noted that the Nigerian economy is heavily burdened and burdened by two major subsidy regimes: the fuel subsidy regime and the foreign exchange subsidy regime. The CPPE leader added that an amount of revenue of at least N6 trillion annually could be realized from the subsidy program if appropriate reforms are implemented.
“There is a plan to end petroleum subsidies, which is a positive development. This action will open up a minimum of N6 trillion revenue to the federation account every year. In addition, there will be an end to several years of looting of the country’s resources through the subsidy regime,” the CPPE statement said.
According to the think tank, the next government must show the political will to end “predatory practices”.
The CPPE also appealed to trade unions and civil society organizations to give the oil and gas sector reforms a chance to prevent Nigeria’s economy from going deeper into crisis.
Forex regime
Mr. Yusuf said that the second major subsidy regime that has huge benefits can be opened in a short period of time is the foreign exchange policy regime.
He explained that over the years, the exchange rate assumption in the appropriation act has been grossly and deliberately underestimated, causing losses of trillions of naira to the economy.
“In 2021, for example, the Central Bank sold about $18 billion US dollars as an intervention in the foreign exchange market at an average subsidy rate of N400 per dollar.
“The effective exchange rate in the economy at that time was N560/$. This means a subsidy of about N160/$ which translated into a conservative estimate of N2.9 trillion revenue loss,” he added.
Also in 2022, Mr. Yusuf said that about $18 billion will be sold as intervention in the forex market at an average of N447/$.
“The average effective exchange rate for the conservative period is about N650. Again, this means a subsidy of N203/$. This translates into a revenue loss of about N3.64 trillion.
“This is a huge loss of revenue for foreign exchange subsidies that destroy the economy like fuel subsidies. But strangely, the National Assembly and the CBN have serially, grossly and inexplicably underestimated the benchmark exchange rate in the appropriation bill some years ago.
“For an economy burdened by huge fiscal deficits and unsustainable debt obligations, this should not continue in 2023. The reality is that end users of forex are paying more than N700/$ for business transactions. Selling government forex for less than N500/$ is unacceptable ,” the statement said.
Also read: Fuel subsidies ‘organised crime’ – Peter Obi
Mr. Yusuf noted that the exchange rate assumption in the budget should be reviewed immediately to reflect the reality of the exchange rate and increase revenue to the federation account.
According to him, this can be done within the framework of the Finance Act which is under review. A realistic exchange rate benchmark would increase the federation account revenue by about N4 trillion by 2023, he added, noting that this would not only benefit the federal government but also state and local governments.
“A realistic exchange rate will also increase forex inflows into the economy, increase foreign reserves, strengthen the naira and increase investor confidence.
“Currency brokers, middlemen and some operatives in the financial system are the main beneficiaries of the huge arbitrage opportunities, the massive rent economy and the extensive round-tripping companies that the forex subsidy regime has created,” he added.
He added that unlocking revenues from forex subsidies would be an important step towards achieving the government’s fiscal consolidation goals.
“It will also reduce the current tendency to impose additional tax burdens on businesses and moderate macroeconomic pressures.
“It must be emphasized that this is not a devaluation proposition. It is a strategy intended to correct distortions in the forex ecosystem, boost government revenues, curb corruption in forex transactions and increase liquidity in the forex market.
“This will also increase the efficiency of forex allocation, improve transparency in the forex environment and increase investor confidence in the Nigerian economy,” he said.
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