Despite the huge monthly allocation from the Federation Account Allocation Committee following the removal of the petrol subsidy, many state governments are experiencing severe financial strain.
The Minister of Budget and National Planning, Atiku Bagudu said this in an article published in The Explainer, Volume 28, dated Friday, 27th September 2024.
The Explainer is a weekly publication by the National Orientation Agency.
The minister defended President Bola Tinubu’s economic reforms and the removal of the fuel subsidy, noting that the removal of the fuel subsidy is a crucial step for Nigeria’s economic development.
Bagudu said the president’s strategy focuses on confronting difficult realities while establishing the foundation for long-term growth.
He described the Nigerian economy as small, adding that with a federal budget of about $20bn, the amount is small compared to other countries with similar populations such as Indonesia ($213bn); and Brazil ($750bn).
The Federation Accounts Allocation Committee (FAAC) disbursed N3.47tn to the three tiers of government in the second quarter of 2024.
This reflects an increase of N46.77bn (1.42 per cent) compared to the first quarter of 2024.
But despite this increase, Bagudu said many state governments are battling severe financial strain.
He said, “Our economy is currently small. The federal budget is approximately $20bn. When compared to countries with similar populations, such as Indonesia, with a federal budget of $213bn, or Brazil, with $750bn, it becomes evident that we cannot achieve our economic objectives if we continue on this path. Our revenue must be higher.
“The clearest sign of this is seen in the monthly federal allocation meetings, where we distribute less than $2bn across the three tiers of government.
“Even with this, the total is only $24bn annually, which is insufficient. State governments that depend heavily on this allocation are under severe strain.”
Bagudu also stressed the importance of transitioning to Compressed Natural Gas as a more affordable energy source, especially for transportation.
“The President addressed the fuel subsidy issue and the debate surrounding CNG adoption. While this transition may cause temporary shocks, particularly for vulnerable groups, with the right measures in place, we can build a more competitive energy sector that will drive growth,” Bagudu stated.
He also highlighted that President Bola Tinubu’s administration is tackling these challenges through the Renewed Hope Agenda, which includes social intervention programmes aimed at easing the impact of the economic reforms.
Bagudu added, “A key focus area is managing our foreign exchange. We do not have enough foreign currency reserves, so the Central Bank needs to operate independently.
“The President supports this, following the examples of other nations that have faced similar challenges. A market-based system, rather than one that selects winners and losers, will attract more revenue and help stabilize the exchange rate.”
He praised Tinubu’s vision of empowering young people through a 3-million-youth training programme in areas like automation, artificial intelligence, and robotics. He also underscored the administration’s support for agriculture, SMEs, and microcredit schemes to revitalise domestic economic activity.
“The recent oversubscription of the dollar bond by $900m reflects growing confidence in our economy. Rating agencies have also given favourable evaluations.
“In international interactions, we receive commendations for the steps being taken, as these measures have spurred growth in other countries. Even in Saudi Arabia, officials have expressed their support for the President’s initiatives, praising his focus on economic reforms,” Bagudu said.