Nigeria’s economic policy is facing headwinds as a leaked draft budget proposes a substantial increase in fuel subsidies for 2024. This move contradicts President Bola Tinubu’s earlier pledge to eliminate subsidies and has sparked debate about the country’s long-term economic strategy.
Soaring Costs and Stalled Growth
The draft budget allocates 5.4 trillion naira ($3.7 billion) for fuel subsidies in 2024, a 50% increase compared to 2023. This significant rise comes after President Tinubu scrapped fuel subsidies in May 2023 as part of a reform package aimed at stimulating economic growth. However, the reform backfired, leading to a tripling of petrol prices, which fueled public anger and contributed to rising inflation.
The draft document, titled “Accelerated Stabilisation and Advancement Plan” (ASAP), acknowledges the difficulties associated with the fuel subsidy reform. It proposes alternative solutions, including the sale of government equity in oil refineries. This privatization could generate revenue and potentially attract investment to improve the efficiency of the refining sector.
The ASAP also proposes raising additional revenue through increased excise duties on beverages and the introduction of new taxes on single-use plastics and sugary drinks. These measures aim to broaden the government’s tax base and lessen its reliance on oil revenue, which can be volatile due to fluctuating global oil prices.
Boosting Production to Plug Budget Gaps
Another key proposal in the ASAP is to increase Nigeria’s oil production to 2 million barrels per day by December 2024. Currently, production stands at around 1.4 million barrels per day. This increase in output could generate additional government revenue and help plug budget shortfalls. However, achieving this target may prove challenging due to factors like aging infrastructure, security concerns in the oil-producing Niger Delta region, and limited investment in the sector.
President Tinubu has received the draft proposal, but it remains unclear whether he will endorse the recommendation for higher fuel subsidies. Analysts suggest that approval could lead to implementing the ASAP’s recommendations through executive orders. These recommendations encompass various sectors like power, oil and gas, agriculture, and healthcare, with a focus on supporting businesses.
Nigeria’s economic growth remains sluggish, hovering around 3%, far short of the 6% annual expansion targeted by President Tinubu upon taking office. The ASAP offers a potential roadmap for addressing economic challenges, but questions linger regarding the long-term sustainability of increased fuel subsidies. Critics argue that subsidies distort the market, discourage investment in renewable energy, and place a heavy burden on the national budget.
The Need for Transparency and Public Dialogue
The leaked draft budget has sparked public debate and renewed calls for transparency in Nigeria’s economic policymaking. Open discussions are crucial to ensure that any implemented policies effectively address the country’s economic needs and promote sustainable growth. The success of the ASAP or any alternative plan will hinge on its ability to balance short-term economic relief with long-term economic development strategies.
Source: ReutersÂ
