Unsustainable fuel subsidies and rising public debt – FAAC

The increasing public debt is alarming, according to the Federation Account Allocation Committee Post-Mortem Sub-Committee, while fuel subsidies are unsustainable.

This was said in a statement made following a three-day retreat to assess problems arising from the Federation Account between January 2019 and September 2022.

“The rising level of public debt and the increasing ratio of debt service to revenue is worrying,” according to a communiqué.

It was noted that structural limitations plaguing the oil industry, such as the unsustainable subsidy on petroleum operating as the first line against gross oil income, had made it difficult for the oil sector to contribute to Federation account revenues.

The communiqué noted that while eliminating the fuel subsidy would raise government revenue, inflation would rise, which would have a substantial negative impact on low-income households by rising their cost of living.

Furthermore, it was suggested that “the petroleum industry’s downstream operations should be totally deregulated to permit for the removal of subsidy.

“Nigeria cannot continue to sustain the provision of subsidy on PMS because of the negative impact it has on the nation’s revenue. Accordingly, subsidies on PMS should be phased out.

READ MORE: Oil-producing states racked up more than N4 trillion in domestic debt

“Revenue proceeds accruing from subsidy removal should be used for the benefit of the entire population and should be put to projects having a direct impact on the citizens such as Education, Healthcare, Skill acquisition, etc.”

The committee also demanded cautious management, reduced governance costs, and increased openness at all levels of government.

Mohammad Shehu, the chairman of the Money Mobilization Allocation and Fiscal Commission, questioned why some government-owned enterprises weren’t remitting their revenue to the Federation Account during the retreat. He continued by saying that the Federation Account’s non-oil sector revenue production needed to be improved.