Bisola Fatoye

KPMG, a multinational audit, tax, and advisory services organization, has recommended the use of alternatives to money in mitigating the harsh impact of the recent removal of petrol subsidies.

According to Arise News, the organization stated this in a report titled “Removing Nigeria’s PMS Fuel Subsidy: We Can’t Have Our Cake & Still Eat It”.

It stated that in order to minimize the negative effects of subsidy removal, a series of coordinated actions that take into account inflationary impact, potential social unrest, and the need for compensating measures to cushion the poor are necessary.

Claiming that the $800 million “Compact with the People” the World Bank had offered was a start in the right direction as a result, it added that communication was also important in ensuring that stakeholders were properly informed and engaged in the decision-making process.

The well-known accounting and auditing firm also recommended that the government and other stakeholders raise the minimum wage in order to lessen the impact of the removal on consumers’ purchasing power.

However, it warned that some of the policies, which aim to reduce inflation by increasing the money supply, could actually make it worse and that they should be used with caution.

“Therefore, we will urge adopting alternatives to measures that increase the money supply, such as travel vouchers for the needy in rural and urban areas and tax reductions for the middle class.”

KPMG emphasized that oil and gas continued to decrease at 4.21 per cent, following contractions of -13.38 per cent in Q4, 2022, and -26.04 percent in Q1, 2023.

It recalled that the non-oil sectors grew by 2.77 per cent in Q1 2023, compared to 4.84 per cent in Q4 2022 and 6.08 per cent in Q1 2022, even though the Gross Domestic Product growth in 2022 was predicted to range between 2.85 per cent and 3 per cent in 2023. The services sector remained the main driver of growth at 4.35 per cent.

“In summary, the elimination of PMS subsidies in Nigeria is a complicated topic that necessitates careful analysis of its potential economic, social, and political repercussions. Although subsidies have offered some benefits, they have also been a significant drain on the country’s resources and have contributed to inefficiencies and corruption.”

It noted that the management of the monetary components of deregulation and subsidy reduction requires close coordination between the fiscal authorities and the Central Bank of Nigeria.

The report suggested that the changes wouldn’t be successful without foreign exchange reforms and the closing of the gap between the official and parallel exchange rates.

KPMG highlighted that the removal of PMS fuel subsidies in Nigeria has the potential to encourage higher economic efficiency, lessen corruption, and open up chances for more sustainable and inclusive economic growth with careful planning and implementation.

“However, in sum, the PMS fuel subsidy is clearly unaffordable and unsustainable: Nigeria cannot continue trying to simultaneously have its cake and eat it,” it said.