NAIRA ADJUSTMENT, END TO SUBSIDY TO ADD N200BN TO FAAC MONTHLY

Adjusting the conversion of Dollar rate for oil proceeds to the Naira and putting an end to fuel subsidies could add about N200 Billion to monthly funds shared by the various tiers of government in Nigeria, analysis shows.

The fall in oil income and economic impact of COVID-19 have reduced funds available to be distributed under the Federal Accounts Allocation Committee (FAAC), forcing the government to raid its savings such as excess crude account, stabilisation account, and even Nigeria LNG dividend to push up FAAC to at least N600 billion required each month.

Zainab Ahmed, Nigeria’s Finance Minister, on Monday said the country recorded a shortfall of almost N50 Billion in the March FAAC, and there was not much money in other accounts other than N8.5 Billion found in the exchange rate differential account, which it added to FAAC, pushing it to N605 Billion.

But this shortfall could worsen, leading analysts to recommend ending fuel subsidy as a way out and adjusting how Dollar oil proceeds exchanged in Naira. Subsidies, by government estimates, cost Nigeria between N80 Billion and N100 Billion monthly captured as ‘under recovery’ in the accounts of the Nigerian National Petroleum Corporation (NNPC), depending on oil prices.

For example, according to the NNPC March FAAC report, the February 2021 value shortfall of N73 Billion would be deducted from March 2021 proceeds. This shortfall is due to subsidy deduction. Since this spending is not appropriated by the National Assembly, it is treated as a cost of doing business by the oil corporation, leading to at least a drop of N100 Billion into FAAC’s monthly pot at the current crude oil price.

A recent PwC report noted that the President Muhammadu Buhari-led administration spent N1.12 Trillion on petrol subsidy within a period of three years.  Wolemi Esan, energy partner at Olaniwon Ajayi, said rather than investing this much on fuel subsidy, priorities might be redefined such that such costs, in a phased manner, be re-directed towards revitalising infrastructural deficit in the country.

“This would go a long way in reshaping the cost and standard of living in Nigeria as well as attracting the influx of investment-related and commercial activities in the country,” Esan said. However, there are concerns shared by government officials that removing subsidies will fuel hardship for Nigerians, as the finance minister said the government was also concerned that it could further worsen inflation.

According to Esan, efforts to improve refining to boost local content and local production will increase drastically, and there may not be a need for subsidy in the first place. “More so, to further hedge any risk of hardship being meted out on Nigerians, a phased removal of petroleum subsidies is being proposed,” Esan said.

Read more at: https://businessday.ng/business-economy/article/naira-adjustment-end-to-subsidy-to-add-n200bn-to-faac-monthly/

Author avatar
investor
?>