FG to remove fuel subsidy in 2012
President Goodluck Jonathan informed the National Assembly on Tuesday of his plan to begin the removal of fuel subsidy next year. Jonathan told the National Assembly in a letter conveying his administration’s Medium Term Expenditure Framework and a N4.8tn budget for the 2012 fiscal year.
“A major component of the policy of fiscal consolidation is government’s intention to phase out the fuel subsidy, beginning from the 2012 fiscal year.
“This will free up about N1.2 tn in savings, part of which can be deployed into providing safety nets for poor segments of the society to ameliorate the effects of the subsidy removal,” Jonathan writes in the covering letter for the budget.
The President also said that the accrual to the contentious Sovereign Wealth Fund, as a result of the withdrawal of the fuel subsidy, would augment funds for critical infrastructure through the infrastructure window of the Fund.
On the budget, Jonathan said, “Aggregate expenditure is expected to increase from N4.8 trillion in 2012 to N5.18 trillion in 2015.”
He, however, said that efforts were being made to make savings from overheads as allocations would be frozen until 2015.
He said, “Capital spending will increase marginally from N1.32tn in 2012 to N1.64tn in 2015 as government intends to leverage on the Public Private Partnership-type arrangements to supplement capital allocation from the budget.”
He expressed optimism that the fiscal deficit would follow a declining and sustainable path from 2.69 per cent of the GDP in 2012.
“This is within the threshold indicated by the FRA, 2007 and more importantly, implies that the deficit will be financeable as domestic borrowing will also follow a declining path during the period,” the President wrote.
He noted that the renewed size of the 2011 amended Appropriation Act relative to the 2010 budget signaled government’s intention to scale down its spending from the highs reached in recent times as a result of the global financial crisis and the increased wage bill.
“This scaled back spending will also create space for greater private sector participation in financial markets,” he added.
President Jonathan noted that the issue of diversification of the economy had been a critical objective of the government, noting that the nation’s over-reliance on oil revenue proceeds had hampered the growth of the non-oil segment of the economy.
He said, “Government has recorded much success and goodwill in the creation of the ECA, and now its successor, the SWF, application of the oil-price-based fiscal rule and adherence to the provisions of FRA, 2007; however, in the medium-term, it will be essential to consolidate on this success through targeted interventions to boost the non-oil economy.”
He further said that during the 2012-2015 periods, oil revenue would be expected to increase marginally from N2.37 tn in 2012 to N2.47 tn in 2015 as the benchmark price of $75 would be maintained throughout the period.
According to him, oil production is projected to rise from 2.48mbpd to 2.6mbpd, adding that the drive for increased receipts from non-oil revenue would be intensified and this would be combined with better management and intensification of IGR, CIT and Customs collections.
Explaining the outlay of recurrent spending, he said the recurrent expenditure had outstripped the growth of spending on capital projects largely because of the rising wage bill, an outcome of the increase awarded to civil servants, medical personnel and members of the Academic Staff Union of Universities.
He explained, “The 2012-2015 periods will focus on correcting this structural imbalance in our expenditure profile thus ensuring that more funds are allocated to critical infrastructure projects. The report of the Expenditure Review Committee, which concluded its work in April 2011, will provide a starting point for this key initiative. PPP funding for infrastructure projects will also be pursued aggressively.
“The share of recurrent spending in aggregate expenditure is set to decline from 74.4 per cent in 2011 to 72.5 in 2012 while capital expenditure as a share of aggregate spending is set to increase from 25.6 per cent in 2011 to 27.5 per cent in 2012.”