Nigerians should expect petrol price increase, says Rewane

The Managing Director and Chief Executive Officer, Financial Derivatives Company Limited, Mr Bismarck Rewane, has said fuel subsidies are a huge drain on government’s revenue.

Rewane stated this in his presentation at the Lagos Business School Breakfast Session on May 8, a copy of which was obtained by our correspondent on Tuesday .

He noted that the World Bank put Nigeria ’s total subsidy bill in 2018 at N 731bn , saying, “A gradual reduction in subsidy payments [ is] anticipated . Only N 305 bn set aside for under-recovery in 2019 budget ; expect an increase in the pump price of fuel .

“40 per cent shortfall in provision for subsidies ( under- recoveries ) points to possible price increases .”

The financial expert , however , said a petrol price hike would result in high inflationary pressure .

According to Rewane , Nigeria has one of the lowest tax to Gross Domestic Product ratios at 5.3 per cent.

He described the 2019 budget as counter – cyclical, saying the economy was in dire need of a boost .

He said with expenditures much higher than sustainable revenues, the fiscal deficit had widened by 2. 15 per cent to N 1. 9tn , adding that the supplementary budget could not be avoided .

“Oil revenues are projected to decline due to the impact of OPEC quota on Nigeria ’s oil output level ,” he added .

On new minimum wage funding and its impact on states , Rewane noted that states civil service accounted for about 1 .9 million workers .

He said , “States get 85 per cent of Value Added Tax , as well as other statutory allocations , in addition to internally generated revenue. Personnel expenses of most states exceed IGR . So , there is either an expense problem or a revenue problem .

For social reasons , headcount rationalisation may be farfetched . But labour optimisation will help boost productivity .

“IGR remains key to the funding of the new minimum wage . Funding through the statutory allocation ( Federal Accounts Allocation Committee ) is unsustainable .”
He said an increase in VAT might provide temporary succour , complemented by the improved tax administration .

According to Rewane , other measures include privatisation – partially sell equity across state – owned enterprises ; liberalisation – private sector -led projects; commercialisation – rental income from idle assets; and concessions – fees from long- term leasing of assets .

He noted that the cut in the monetary policy rate, also known as the benchmark interest rate, had no impact on investment, output and savings in April .

The Monetary Policy Commission of the Central Bank of Nigeria had in March cut the MPR to 13 .5 per cent from a record high of 14 per cent.

“There is a possibility of another 25 basis point cut . Credit to the private sector shrank again in April , ” he added .

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