House of Representatives Passes Fiscal Plan, No Subsidy Removal

Nigeria’s House of Representatives on Thursday approved the government’s medium-term fiscal framework (MTFF) but refused to include plans to remove fuel import subsidies in a major setback for the controversial proposal.

Ngozi Okonjo-Iweala, the finance minister and coordinator of the economy, delivered the MTFF to the national assembly in September, including planned savings of about $7 billion a year from removing petrol import subsidies.

The plan is unpopular with Nigerians who believe cheap fuel is the only benefit they get from living in an oil-rich state. Lawmakers said she will have to find savings elsewhere.

“The proposal on fuel subsidy as contained in the revised fiscal strategy paper is premature. Sources other than relying on savings from the proposed subsidy removal as part of financing items for expected deficits should be explored,” the house’s joint committee on finance said in a statement.

The proposal is not dead and can still be passed into law, but without the budget as leverage Okonjo-Iweala and President Goodluck Jonathan will find it harder to persuade lawmakers in a country where reforms have a history of slow progress.

Jonathan and his team have been lobbying hard to build support for removing the subsidy, which they believe fuels corruption and wastes much-needed revenues.

The lower house agreed on a benchmark oil price of $70 a barrel for next year’s budget, slightly lower than the $75 originally proposed in a more cautious approach, given the risks to global oil prices from worsening economic conditions.

The MTFF states that aggregate expenditures next year will be 4.7 trillion naira ($29.15 billion).

Lawmakers approved a recommended exchange rate of 155 naira to the U.S. dollar, which is weaker than the 153 naira in the draft MTFF, reflecting the recent depreciation of the local currency by the central bank.

The fiscal framework aims to keep Nigeria’s fiscal deficit within 2.7 pct of GDP in 2012, 2 pct in 2013, and 1.5 pct in 2014.

Oil output is expected to average 2.48 million barrels per day (bpd) in 2012, 2.55 million bpd in 2013, and 2.58 million bpd in 2014.

Reuters