When the Federal Government of Nigeria attempted to remove the subsidies on the price of Premium Motor Spirit, PMS or petrol in the country early this year, it was received with widespread resistance from most of the citizens of the country who complained that they would be faced with hardship as a result of the resultant increase in the price of fuel. After massive protests around the country, the fuel price which was initially increased from N65 to N141 was reverted back to N97. Although most Nigerians were not happy with this, they eventually succumbed to the new price.
However, the recent declaration by the governor of the Central Bank of Nigeria (CBN), Lamido Sanusi on the fuel subsidy indicates that the last has not been heard of subsidizing fuel prices in Nigeria. Mr Sanusi, in an interview with Reuters, pushed for the complete removal of the system of subsidizing fuel, adding that a sharp fall in oil prices could spell big trouble for Nigeria. He added that it could also lead to a massive depreciation of the currency and a situation whereby some states would not be able to pay salaries.
Here are excerpts from a Channels TV report:
The governor of the Central Bank of Nigeria (CBN), Lamido Sanusi in an interview with Reuters on Friday in New York said that the current system of subsidizing fuel prices is unsustainable.
Mr Sanusi, a former banker who specialized in risk management and who is allied with Finance Minister Ngozi Okonjo-Iweala in the push for reforms, is pushing for the complete removal of the system of subsidizing fuel.The government tried to scrap the subsidies but backtracked after widespread protests earlier this year and partially reinstated them.
The CBN governor said the government should spend no more than the N880 billion for subsidies in 2012 earmarked in the budget signed by Nigerian President, Goodluck Jonathan on Friday.
“I would simply like to see that the government does not pay a penny more than that, no matter what happens,” he said.
Mr Sanusi also said that a sharp fall in oil prices could spell big trouble for Nigeria.
“There will be a very bad day and a lot of gnashing of teeth if the oil price crashes and we haven’t saved a thing,” he said.
According to the CBN governor, though Nigeria is one of the world’s fastest-growing economies – gross domestic producer expanded by more than 7 per cent last year – and foreign investors have poured money into its financial markets to take advantage of high interest rates, it remains dependent on oil production which accounts for about 80 per cent of government revenues.
He is a leading advocate for an overhaul of Nigeria’s economy to make it less exposed to fluctuations in oil prices, a campaign which has drawn opposition from the country’s powerful state governors.
They fear reforms such as creating a sovereign wealth fund could prevent them from dipping into Nigeria’s windfall oil revenues.
Mr Sanusi noted recent discussions between the United States and other industrialized nations about the possible release of strategic petroleum reserves, and signs that producer countries such as Saudi Arabia might increase output to help bring down oil prices.
“Our major concern is a major decline in the price of oil or (domestic) output would lead to a massive depreciation of the currency, a collapse in reserves and a huge growth in deficits and some of the states outside of the oil-producing region might find actually themselves in a situation where are not able to pay salaries,” he said.
“I am trained to think in terms of ‘what if’ and that’s the mindset I bring to my job. What happens if oil prices go to $50 a barrel? It’s happened before.”
Asked how low oil prices would need to fall before they pose a risk to Nigeria, Mr Sanusi said a decline to around $85 or $90 a barrel – from around $120 now – could lead to a shortfall in projected revenues and higher budget deficits, if Nigeria’s oil output does not increase.
As a policy formulator with his wealth of experience, Mr. Sanusi’s reasons are well understood. However, for the bulk of the Nigerian people, this is far from what they need.
The high dependence on fuel as a result of the epileptic power supply further worsens the situation as individuals and businesses have to rely on petrol or diesel generating sets for electricity. Furthermore, a rise in the price of fuel would have a direct impact on transportation costs which would eventually have a rippling effect on the prices of other commodities and business services in the country.
So what do you think? Would a removal of the fuel subsidy have a positive impact on Nigeria’s economy in the long run? Should the government continue with the fuel subsidies in order to alleviate the hardships Nigerians are sure to face if it were otherwise?
Please share your thoughts.
News Source: Channels TV