ABOLITION OF SUBSIDY, FOREIGN EXCHANGE UNIFICATION AND ITS EFFECTS ON REVENUE FOR FEDERAL AND SUBNATIONAL GOVERNMENT IN NIGERIA
A piece by Henshaw Oligbi
A Finance and Economy Expert.
The wheel of progress in Nigeria economy seems to have been put on motion with the recent removal of petroleum product subsidy and obliteration of multiple foreign exchange rates.
This difficult but necessary policy decision was made by President Bola Amhend Tinubu at the begining of his administration.
The implication of these two policies is multi dimensional both in the short, medium and long term for Nigerians. As government shelves the payment of certain percentage of market value of petroleum product to final consumers, this enable government to retain more money in revenue as all that money that would have been paid as subsidy are now disposable income for the three ties of government.
Similarly, foreign exchange unification using the I&E window to determine exchange rate helps the government to earn more naira in every one dollar realize as income, take for example where government uses the CBN official rate of #420 to $1 is now #730 to $1, which is a difference of about #310 to a dollar in increase. This will further cascade to about 85 to 90% increase of FAAC allocation to Federal, States and Local governments.
if these funds are properly utilized in the short and medium term by way of heavy investment in food production and massive critical infrastructural development, it will create robust economy, facilitate Foreign Direct Investment into the Oil Gas Sector and other related sectors of the economy that will help to put the prices of petroleum products and other basic items into the reach of ordinary Nigerians
Failure of the three ties of government to properly manage this additional revenue that these policies has thrown at them will lead to hyper inflation which is capable of throwing a sizable number of low income earners into poverty which may further threaten the security of this country in the very long run.
It is also worthy to note that this FX unification policy has increased the foreign debt burden of Nigeria and the cost of servicing same, as foreign facilities secured at an exchange rate of #420 to a dollar will now be serviced at #730 to a dollar exchange rate as at today.
Government must immediately look inward and restrict importations of items that can be produce locally in other no to put pressure of demand of dollars, encourage export, roll out support programme for SMSEs, invest in human capital development and come up with policies that will cushion the effect and hardship that follows the subsidy removal.
A piece by Henshaw Oligbi
A Finance and Economy Expert.
I would have wanted a more robust discussion around the foreign exchange unification; how it puts more money in government pocket, considering that we now need more Naira to exchange for a dollar.
Also, inflation will not wait for governments to fail in the implementation of the windfall from the subsidy removal as is already being experienced.
Thank you sir