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Remove Fuel Subsidy, IMF Tells Nigeria

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IMF
  • Remove Fuel Subsidy, IMF Tells Nigeria

The Managing Director, International Monetary Fund, Christine Lagarde, has called on the Federal Government to remove fuel subsidy, saying it is the right thing to do.

Addressing a press conference on Thursday at the on-going joint annual spring meetings with the World Bank in Washington DC, the IMF boss said with the low revenue mobilisation that existed in Nigeria in terms of tax to Gross Domestic Product, it was important for the country to remove fuel subsidy.

By so doing, she opined, the country would be able to move funds into improving health, education, and infrastructure.

The IMF had in its 2019 Article IV Consultation on Nigeria noted that phasing out implicit fuel subsidies while strengthening social safety nets to mitigate the impact on the most vulnerable would help reduce the poverty gap and free up additional fiscal space in the country.

When reminded that the removal of subsidy was a sensitive issue to Nigerians, many of who live below the poverty line, Lagarde insisted that the right thing to do was for Nigeria to embark on total fuel subsidy removal.

She said, “I will give you the general principle. For various reasons and as a general principle, we believe that removing fossil fuel subsidies is the right way to go. If you look at our numbers from 2015, it is no less than about $5.2tn that is spent on fuel subsidies and the consequences thereof. And the Fiscal Affairs Department has actually identified how much would have been saved fiscally but also in terms of human lives, if there had been the right price on carbon emission as of 2015. Numbers are quite staggering.

“I would add as a footnote as far as Nigeria is concerned that, with the low revenue mobilisation that exists in the country in terms of tax to GDP, Nigeria is amongst the lowest. A real effort has to be done in order to maintain a good public finance situation for the country. And in order to direct investment towards health, education, and infrastructure.”

The IMF boss added, “If that was to happen, then there would be more public spending available to build hospitals, to build roads, to build schools, and to support education and health for the people.

“Now, how this is done is the more complicated path because there has to be a social protection safety net that is in place, so that the most exposed in the population do not take the brunt of the removal of subsidies principle. So that is the position we take.”

Between January and November 2018, the Nigerian National Petroleum Corporation spent a total of N623.16bn on fuel subsidy under its under-recovery arrangement.

Although the corporation insisted that it was not paying subsidy on petrol as it had no parliamentary approval for such, it revealed through the document presented to Federation Account Allocation Committee in December 2018, that what the NNPC had incurred as under-recovery in 11 months was N623.16bn.

Lagarde lamented that 70 per cent of the global economy was decelerating and as such, the Bretton Wood institution had cut its forecast across the board.

She said, “But just like nature, the global economy is also currently quite uncertain. As I said a year ago, we were talking about synchronised growth. And 75 per cent of the global economy was going through that phase. As you heard a couple of days ago, we are now talking about a synchronised slowdown by 70 per cent of the global economy.

“So, our forecast for growth this year is 3.3 per cent, going back up, we hope in 2020 based on our forecast, to 3.6 per cent. But we contend that we are at a delicate moment and this expected rebound from 3.3 per cent in 2019 to 3.6 per cent in 2020 is precarious and subject to downside risks, ranging from unresolved trade tensions, yet high debt in some sectors and countries, both public and corporate, to the risk of weaker than expected growth in some stressed economies. And, of course, the consequences of whatever Brexit will be.”

In terms of policy recommendations, Lagarde suggested multiple policies that were country-specific, saying that there was no one size fits all.

“But we certainly would recommend two key principles. One is, do no harm. Second, do the right thing. So, do no harm. The key is to avoid the wrong policies, and this is especially the case for trade,” she added.

Earlier, the World Bank Group President, David Malpass, gave the assurance that the bank would help Africa tackle illicit fund flows because such funds ‘suck resources away from poor people, and from the ability of a country to really grow and develop.’

He added, “The bank has not nearly enough but expanding strength in helping people think about how to best keep track of financial flows and make sure that they are legitimate financial flows.

“This takes the form of technical assistance; it takes the form of close cooperation with the financial officials in the country, and it’s something countries, I think, are rising to the challenge, and trying to make it work better. But clearly, more can always be done.”

The new World Bank boss decried the rising level of poverty in Africa, adding that the situation was jeopardising the bank’s goal of ending extreme poverty by 2030.

He said, “On current trends, per capita income in growth in sub-Saharan Africa as a whole is now projected to stay below one per cent until at least 2021, which elevates the risk of a further concentration of extreme poverty on the continent. Growth in median income will also be weak.

“This fact is extremely troubling because it jeopardises the World Bank’s primary goal of ending extreme poverty by 2030.

“Globally, extreme poverty has dropped to 700 million at the last count. That’s down from much higher levels in the 1990’s and 2000’s. But the number of people living in extreme poverty is on the rise in sub-Saharan Africa.

“By 2030, nearly nine in 10 extremely poor people will be Africans, and half of the world’s poor will be living in fragile and conflict-affected settings. This calls for urgent action – by countries themselves and by the global community.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

Stop Maize, Soybean Export to Reduce Scarcity – NIAL

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Stop Maize, Soybean Export to Reduce Scarcity – NIAL

The Nigerian Institute of Animal Science on Tuesday called on the Federal Government to halt the continued export of maize and soybean to reduce the scarcity of the commodities as well curb their price hike in Nigeria.

Registrar and Chief Executive Officer, NIAL, Prof. Eustance Iyayi, told journalists in Abuja that the poultry sector was currently hit by the severe scarcity of maize and soybean.

This, he said, was due to the continued export of the commodities, the COVID-19 pandemic, which had disorganised the international supply chain, lingering insecurity in the North-East, farmers/herders conflict and flooding in some parts of the country.

“Maize and soybean are being exported and this has exacerbated the situation leading to local scarcity and price escalation of the commodities in poultry production,” Iyayi stated.

He added, “The increasing prices of the essential commodities has resulted in the increase in price of finished feeds by about 75 per cent.

“This has led to the closure of small and medium sized poultry farms thereby threatening about 10 million jobs as a result of this scarcity.

“To set the poultry industry from total collapse, the institute urges the government to immediately halt the exportation of soybean and maize and grant import permit to importers at the official foreign exchange rate.”

Iyayi said there was shortage of soybean in Nigeria and other countries, stressing that the little amount being produced across the country should not be exported.

He said the current maize yield of about one to two tonnes per hectare being produced in Nigeria would not be enough to sustain the country.

The NIAL helmsman stated that the country should be producing between seven and 10 tonnes per hectare in order to meet the requirements for humans and animals.

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Economy

Petrol Landing Cost Jumps to N186, Oil Hits $64

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Petrol Landing Cost Jumps to N186, Oil Hits $64

Against the backdrop of the rising price of oil prices, the landing cost of Premium Motor Spirit (petrol) imported into Nigeria has increased to N186.33 per litre.

Investors King had exclusively reported on February 9 that the landing cost of PMS rose to about N180 per litre on February 5 from N158.53 per litre on January 7.

Crude oil price accounts for a large chunk of the final cost of petrol, and the deregulation of petrol price by the Federal Government last year means that the pump price of the product will reflect changes in the international oil market.

Going by the petrol pricing template of the Petroleum Products Pricing Regulatory Agency, the landing cost of petrol rose to N186.33 per litre on February 16, with the pump price of the product expected to be N209.33 per litre.

The international oil benchmark, Brent crude, closed at $63.96 per barrel on February 16, up from $59.34 per barrel on February 5.

The rising price of crude oil pushed the cost of petrol quoted on Platts to $560.75 per metric tonne (N163.08 per litre, using N390/$1) on February 16 from $543.25 per metric tonne (N157.99 per litre) on February 5.

Other cost elements that make up the landing cost include freight (N10.29), lightering expenses (N4.57), insurance cost (N0.25), Nigerian Ports Authority charge (N2.38), Nigerian Maritime Administration and Safety Agency charge (N0.23), jetty throughput charge (N1.61), storage charge (N2.58), and financing (N1.33).

The freight cost increased to $35.41 per MT (N10.29 per litre) last Wednesday from $30.04 per MT (N8.74 per litre) on February 5.

The pump price is the sum of the landing cost, wholesale margin and the distribution margins. The wholesale margin is N4.03 while the distribution margins comprise transporters allowance (N3.89), retailer (N6.19), bridging fund (N7.51), marine transport average (N0.15), and admin charge (N1.23).

Apart from the changes in global crude oil prices, the exchange rate of naira to the dollar also affects the cost of imported petrol.

The cost of petrol would be higher if the 410/$1 rate at which the naira closed on Monday at the Investors’ and Exporters’ Foreign Exchange Window was used. The naira closed at 480/$1 at the parallel market.

The Nigerian National Petroleum Corporation, which has been the sole importer of petrol into the country in recent years, is still being relied upon by marketers for the supply of the product despite the deregulation of the downstream petroleum sector.

Oil marketers said recently that they were ready to resume importation of petrol if the foreign exchange was made available to them at a competitive rate.

“The discussion we should be having today is how best to maximise the benefits of the removal of price controls and subsidies while minimising the adverse effects of this action on our citizens,” the Chairman, Major Oil Marketers Association of Nigeria, Mr Adetunji Oyebanji, said at a virtual press briefing.

Brent crude, against which Nigeria’s oil is priced, rose by $1.67 to $64.58 per barrel as of 6:08pm Nigerian time on Monday.

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Economy

FG to Lift 100 Million People Out of Poverty With Gas Expansion Project

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Gas Plant

FG to Lift 100 Million People Out of Poverty With Gas Expansion Project

The Federal Government has said about 100 million Nigerians will be lifted out of poverty through the National Gas Expansion Programme (NGEP).

The Minister of State for Petroleum Resources, Chief Timipre Sylva, disclosed this on Monday during the inauguration of the NGEP in Ado Ekiti, Southwest.

Sylva said the project was “a practical demonstration of President Muhammadu Buhari’s commitment to lift 100 million Nigerians out of poverty by using gas value chain as catalyst for social and economic development in Nigeria”.

The minister said, “The programme has its main objective to reinforce and expand gas supply as well as stimulate demand in Nigeria through effective and efficient mobilisation and utilisation of all available assets, resources and infrastructure in the country.

“The programme is geared towards the implementation of Mr President June 12, 2019 promise to take hundred million Nigerians out of poverty within the current decade by ensuring that locally produced, available, accessible and affordable fuel is sufficiently supplied across the country”.

Sylva added that Nigeria was richly endowed with mineral resources, specifically, hydrocarbons, crude oil and natural gas with proven gas reserves of over 200 trillion cubic feet of natural gas, which he said had presented the country with opportunity to use gas as a catalyst for social economy renaissance.

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