The federal government has explained that the current subsidy regime on petroleum motor spirit (PMS), which is covered under the ‘Cost Recovery’ mechanism of the Nigerian National Petroleum Corporation (NNPC) would end in the first half of 2022.
The Director General of the Budget Office of the Federation (BoF), Mr. Ben Akabueze, disclosed this in Abuja yesterday during an interactive session with journalists, civil society organisations and other stakeholders on the 2022 budget proposals.
Akabueze explained that fuel subsidy exerts enormous strain on government finances and does not benefit the poor for which they are targeted, adding that the elite enjoys 80 per cent of subsidy.
The DG Budget stated that the revised 2022-24 Medium Term Expenditure Framework (MTEF) was premised on a hybrid of January-June which is anchored on the current fiscal regime with provision for cost recovery by the state oil company, as well as July-December based on the Petroleum Industry Act (PIA) fiscal regime.
According to him, by the second half of 2022, the NNPC would transit fully and operate as a full commercial entity funding its operations and maximising its gross revenues. Akabueze, who spoke extensively on the proposed N16.39 trillion budget, noted that 34.8 per cent of projected revenues is to come from oil-related sources while 65.2 per cent is to be earned from non-oil sources.
He pointed out that the combined expenditure of the federal, state and local governments was less than 15 per cent of Gross Domestic Product (GDP).
According to him, the biggest challenge stems from low revenue, lamenting that about 40 million of the 70 million Nigerians who should be in the tax pool were not paying taxes.
He said, “It is absolutely critical that we fix our revenue challenge because oftentimes people just say cut expenditure. The truth is cutting expenditure is not currently a viable option for two main reasons. Number one, our public expenditure to GDP ratio is about the lowest even on the continent of Africa.
“As a country, our public expenditure to GDP ratio is under 15 per cent. Even on the continent of Africa, that ratio, the average is over 30 per cent. The global average is over 30 per cent. I am talking of the whole of government – federal, state and local governments. The reality is that in aggregate, governments in Nigeria are not spending too much, they are actually spending too little.
“So, the solution is not to cut government spending. The solution is to make government spending more efficient and actually increase the scope for the government to be able to spend more because our public expenditure to GDP is so low. That is why the delivery of public goods and services is weak.”
Akabueze argued that there is a correlation between low public expenditure to GDP ratio and low revenue to GDP ratio. He further stated that the government’s revenue to GDP was also among the lowest in Africa. Akabueze observed that many stakeholders had advocated a cut in personnel cost which currently stands at about N4.1 trillion to address revenue challenges, arguing that doing so was not an option.