ELIMINATING FUEL SUBSIDIES WILL INCREASE NIGERIA'S REVENUE BY AT LEAST N6 TRILLION ACCORDING TO CPPE

The CPPE recommended that the budget's exchange rate assumption be urgently examined.

The proposed plan to eliminate petroleum subsidies, according to the Centre for the Promotion of Private Enterprise (CPPE), would increase the Nigerian government's revenue by at least N6 trillion yearly.

In a statement titled “Tweaking the 2023 Finance Bill and Options for Unlocking Revenues in 2023,” Muda Yusuf, director of CPPE, made this disclosure on Sunday.

Mr. Yusuf stated that two significant subsidy regimes—the gasoline subsidy regime and the foreign exchange subsidy regime—have a significant negative impact on the Nigerian economy. The head of the CPPE noted that massive amounts of revenue, estimated to be at least N6 trillion yearly, can be realized from these subsidy programs if suitable reforms are carried out.

It's a good thing that there is a strategy. The federation account would get at least N6 trillion in annual revenue as a result of this decision. Additionally, the subsidy regime's long history of robbing the country of its resources would come to a stop, according to the CPPE statement.

The next administration will need to show political resolve to halt the “predatory behavior,”.

Forex system

The foreign exchange policy regime, according to Mr. Yusuf, is the second significant subsidy regime from which enormous sums of money can be extracted in the near future.

According to him, the purposeful and massive understatement of the exchange rate assumptions in the appropriation acts over time cost the economy trillions of naira.

Central Bank intervened in the foreign exchange market in 2021 by selling an estimated $18 billion of US dollars at a heavily subsidized average rate of N400 per dollar.

At the time, the economy's effective exchange rate was N560 to $1. This resulted in a conservative estimate of a revenue loss of N2.9 trillion, or an estimated subsidy of N160 per $1.

The same thing happened in 2022, according to Mr. Yusuf, when an estimated $18 billion was sold as a foreign market intervention at an average exchange rate of N447/$.

“Around N650 was the cautious average effective exchange rate for the time period. Once more, this amounted to a N203/$ subsidy. This amounts to an expected loss of N3.64 trillion in revenue. These significant revenue losses from the foreign exchange subsidy are just as bad for the economy as the fuel subsidy. But oddly, in the recent spending bills, both the National Assembly and the CBN had repeatedly, egregiously, and for no apparent reason undervalued the exchange rate benchmark. ”This should not be permitted to continue in 2023 for an economy that is burdened by a massive fiscal deficit and unsustainable debt obligations. In actuality, end users of forex spend much in excess of N700/$ for their business operations. It is unacceptable to sell government currency for less than N500 to the dollar, the statement read.

Mr. Yusuf added that in order to reflect current exchange rates and increase revenue to the federation account, the budget's exchange rate assumption should be quickly reconsidered.

He claimed that this was possible within the parameters of the Finance Act, which is now being examined.

A realistic exchange rate will help bolster the naira, the country's foreign reserves, forex inflows into the economy, and investor confidence.

He continued, “Currency brokers, middlemen, and some financial system operators are the main beneficiaries of the enormous arbitrage opportunities, tremendous rent economy, and the immense round-tripping activity that the forex subsidy regime has generated.”

He continued by saying that releasing the currency subsidy revenues would be a crucial step in achieving the government's goal of fiscal consolidation.

This would also moderate macroeconomic headwinds and lessen the current tendencies to tax corporations more heavily.

It should be made clear that this is not a proposal for a devaluation. In addition to increasing government revenue, reducing corruption in foreign exchange transactions, and improving market liquidity, this technique aims to eliminate imbalances in the forex ecosystem.

He added that it will boost transparency in the forex market, increase the efficiency of currency allocation, and increase investor trust in the Nigerian economy.