Global audit, tax, and advisory services firm, KPMG, has called for the deployment of alternative measures to money supply in cushioning the severe impact of the recent petrol subsidy removal in Nigeria. In its report titled “Removing Nigeria’s PMS Fuel Subsidy: We Can’t Have Our Cake & Still Eat It,” the organization emphasized the need for coordinated actions to minimize negative effects, including potential inflation, social unrest, and compensatory measures to support the poor.
The report acknowledges the World Bank’s proposed $800 million “Compact with the People” as a step in the right direction. However, it stresses that effective communication and engagement with stakeholders are crucial for informed decision-making.
KPMG also suggests that the government and other stakeholders consider increasing the minimum wage to mitigate the removal’s impact on consumers’ purchasing power. Nonetheless, it cautions that such measures could exacerbate inflation and advises handling them with care.
To balance the impact on money supply and purchasing power, KPMG advocates alternatives like transport vouchers for the rural and urban poor and tax cuts for the middle class (PAYE, VAT, CIT). These measures aim to cushion the negative effects while minimizing the impact on money supply.
The report highlights the economic challenges arising from the naira redenomination cash crunch in early 2023, significantly impacting growth. In Q1 2023, Nigeria’s Gross Domestic Product (GDP) grew at 2.31 per cent year-on-year, slowing down from 3.52 per cent in the previous quarter. Agriculture contracted for the first time since 1987, declining by 0.90 per cent. The oil and gas sector continued to contract at 4.21 per cent.
KPMG stresses that addressing the removal of subsidies on PMS requires careful consideration of its potential economic, social, and political impacts. While subsidies have had some benefits, they have also drained the country’s resources and contributed to inefficiencies and corruption.
For successful PMS fuel subsidy removal, KPMG underscores the need for political will, commitment from the federal government, and coordination with the states. Effective management by the fiscal authorities and the Central Bank of Nigeria (CBN) is essential for monetary aspects of deregulation and subsidy removal.
The report calls for very clear and unambiguous transparency in the process and emphasizes the importance of cutting wasteful expenditure and reducing the rising costs of running the government. Implementing the Orosanye report, estimated to save the government N1.3 trillion, requires courage and political will.
KPMG urges Nigeria to learn from other countries’ experiences with subsidy reforms, emphasizing stakeholder engagement and effective communication. With careful planning and implementation, the removal of PMS fuel subsidies in Nigeria can promote greater economic efficiency, reduce corruption, and foster sustainable and inclusive economic growth.
In conclusion, KPMG stresses that the PMS fuel subsidy is unaffordable and unsustainable. Nigeria cannot continue attempting to simultaneously have its cake and eat it. Bold and decisive actions are needed to address this issue effectively.