IN August last year, the Nigerian government signed an agreement with the World Bank for a loan of $800 million to fund fuel price increases palliatives for the poor. Nigeria’s special drawing rights (SDR) of $565.3 million with the IMF was used as collateral for the loan.
The loan came with the usual conditions. These conditions include increases in PMS prices (removal of fuel subsidies), increases in natural gas prices and electricity tariffs, termination of oil thefts, unification of exchange rates (devaluation of the naira), privatisation of state-owned enterprises, balance of payments stabilisation, increases in taxes including VAT and reorganisation of government institutions. Our children and grandchildren are expected to pay off this loan by 2051.
“Many of these palliatives and the N20,000 cash disbursements funds meant for poor Nigerians were diverted, hoarded and stolen. The Nigerian masses had to force open the warehouses themselves and appropriate the hoarded palliatives. The whole program was a failure due to lack of capacity, inefficiency and corruption. Therefore, the World Bank loan and palliatives will most likely be looted and stolen by corrupt government bureaucrats and politicians.”
Low fuel prices benefit the poor majority and small, micro and medium enterprises (SMMEs). Many studies by the IMF show that increases in fuel prices (removal of fuel subsidies) increases poverty and pushes the poor below subsistence level. Many SMMEs which depend on petrol powered generators fail as energy costs soar.
According to the IMF, “The impact of increasing domestic fuel prices on the welfare of households arises through two channels. First, households face the direct impact of higher prices for fuels consumed for cooking, heating, lighting, and personal transport. Second, an indirect impact is felt through higher prices for other goods and services consumed by households as higher fuel costs are reflected in increased production costs and consumer prices.” So, the IMF advised that governments should “implement targeted mitigating measures to mitigate the impact of energy price increases on the poor”.
In January 2012, the federal government increased PMS prices from N65/litre to N145/litre. The Nigerian masses fought back with rallies and strikes. The government was forced to reduce PMS prices from N145/litre to N87/Litre. The government also introduced mitigating measures under the Subsidy Reinvestment and Empowerment Program (SURE-P). The programs under SURE-P included Maternal and child health services, Public works/Youth Employment Programs, Urban mass transit schemes and Vocational training schemes.
The total SURE-P budget of N1.3 trillion consisted of N633 billion to the federal government, N349 billion to state governments, N269 billion to local governments and N49 billion to special transfers to the judiciary and the National Assembly in compliance with the Appropriation Act. The federal government put the disbursement of its share of SURE-P under the Christopher Kolade Committee. Very few of the SURE-P programs were executed. SURE-P failed because of mismanagement and corruption.
In 2013, the IMF reviewed the lessons from the 2012 struggles against fuel price deregulation in Nigeria (IMF: Energy Subsidy Reform: Lessons and Implication, January 2013). The report outlined six key elements for a successful fuel subsidy removal. On the pace and timing of energy price increases, the report stated: “Too sharp an increase in energy prices can generate intense opposition to reforms, as happened with fuel subsidy reforms in Mauritania in 2008 and Nigeria in 2012. A phased approach to reforms permits both households and enterprises time to adjust, and permits the country time to build credibility by showing that subsidy savings are being put to good use.”
The report also explained that “well-targeted measures to mitigate the impact of energy price increases on the poor are critical for building public support for subsidy reforms.” Cash transfer to the poor was the best well-targeted mitigating measure. Thus, cash transfer to the poor and phased increases in fuel prices were recommended as key components of future subsidy removal programs in Nigeria. The $800 million World Bank palliative loan is aimed at mitigating the negative impact of the planned post June 2023 phase increases in PMS prices on the poor.
The federal government claims to have a register of 10 million poor households containing about 50 million poor Nigerians. But, 133 million or 63% of the Nigerian population live in multidimensional poverty. Eighty-seven million (40%) are poor and live on less than N337/day. How do these 87 million poor Nigerians survive on less than N377/day? They spend 56.65 per cent (about N214/day) on food, 11.5 per cent (N43/day) on transport and fuel, 12.3 per cent (N46/day) on health and education, 12.7 per cent (N48/day) on rent, household goods and clothing, and the remaining 6.85 per cent (N26/day) on services and water.
“In Sri Lanka, mass protests against fuel shortages and prices ousted the government of President Gotabaya Rajapaksa. It is certain that Nigerian workers and poor masses, like their counterparts in other nations, will resist the planned 2023 PMS price increases with strikes, demonstrations, sit-at-homes and protests. The government is well advised to ensure our self-sufficiency in petroleum products production and revive our refineries prior to imposing any PMS price increase on the Nigerian masses.”
An increase in PMS price raises the prices of food, transport, fuel, and everything else. Most of these poor Nigerians have no bank accounts. It is not clear how the government plan to carry out the cash transfer with new bureaucracies such as the National Social Safety Nets Coordinating Office (NASSCO), the National Steering Committee (NSC), National Cash Transfer Office (NCTO), state steering committee (SSC), state operations coordination unit (SOCU) and state cash transfer units (SCTU) whose establishment are required as part of the condition for the $800 million loan. The world bank loan palliatives program is designed to fail due to inefficiency and corruption.
Nigerian experience with palliatives is mired in failure. In February 2020, an IMF staff team visited Lagos and Abuja to conduct its annual Article IV consultation discussion with Nigerian government officials. The IMF staff team recommended fuel subsidy reform and the unification of the exchange rates. The following month, the federal government requested financial assistance under the IMF Rapid Financing Instrument (RFI) to help with balance of payment needs and COVID-19 health expenditures. The government had obtained a $2.5 billion loan from the World Bank and a $1.0 billion loan from the African Development Bank to deal with the effects of the pandemic.
In April 2020, the Executive Board of the IMF approved Nigeria’s request for emergency financial assistance of $3.4 billion (100 per cent of quota) under the RFI to meet the urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic. The federal government also disbursed N288bn from the N500bn set aside for Covid-19 intervention program through its Economic Sustainability Plan. A review by BudgIT concluded that “Per our findings, the continuous mismanagement of palliative items and funds earmarked for the COVID-19 response has created a wider gap between the rich and the poor where the vulnerable and marginalised are denied access to the palliative items that rightfully belong to them”.
Many of these palliatives and the N20,000 cash disbursements funds meant for poor Nigerians were diverted, hoarded and stolen. The Nigerian masses had to force open the warehouses themselves and appropriate the hoarded palliatives. The whole program was a failure due to lack of capacity, inefficiency and corruption. Therefore, the World Bank loan and palliatives will most likely be looted and stolen by corrupt government bureaucrats and politicians.
The World Bank/IMF experts always underestimate the capacity of the poor masses of workers and peasants to resist policies that deepen their poverty and underdevelopment. An IMF loan of $2.8 billion with conditions for poor people palliatives were given to Tunisia in 2016. There were many protests, demonstrations, rallies and strikes in the next 12 months. The palliative and fuel price increase program failed as protests, strikes and rallies intensified during 2018-2022 period. Future protests and strikes are expected as the government has declared that fuel subsidies will end by December 2023.
Egypt also signed $12 billion IMF loan palliative agreement in 2016. The government has met protests and strikes with arrests, detention and an iron fist. Egypt was forced to take another $3 billion loan in 2022 after years of increasing fuel prices, privatisation of public assets and a 40% reduction in the value of its currency. The BBC analysed data on protests and demonstrations against increased fuel prices in more than 93 countries in the first 9 months of 2022. There were more than 600 protests in Indonesia, 200 in Italy and 335 in Spain. More than 80 people from countries such as Argentina, Ecuador, Guinea, Haiti, Kazakhstan, Panama, Peru, South Africa and Sierra Leone lost their lives during protests over fuel prices.
In Sri Lanka, mass protests against fuel shortages and prices ousted the government of President Gotabaya Rajapaksa. It is certain that Nigerian workers and poor masses, like their counterparts in other nations, will resist the planned 2023 PMS price increases with strikes, demonstrations, sit-at-homes and protests. The government is well advised to ensure our self-sufficiency in petroleum products production and revive our refineries prior to imposing any PMS price increase on the Nigerian masses.
Dr Agbon, now a consultant; was HOD, Department of Petroleum Engineering, University of Ibadan (UI), former ASUU Chairman, UI. He lives in the USA, and can be reached via: Izielenagbon@yahoo.com, or Twitter: @izielenagbon.
