The Chief Executive of Financial Derivatives Company, Mr. Bismark Rewane has said that fuel subsidies will have to be removed in order to sustain the economy because subsidies breed corruption.
Rewane said this while speaking at the opening of the 20th annual Central Bank of Nigeria (CBN) Seminar for Finance Correspondents and Business Editors, themed: “The Impact of Crude Oil Prices on External Reserves and Exchange Management in Nigeria.
He said “The truth is that refineries were producing before subsidies were introduced. Subsidies are a gap between the price and the cost. Even if you produce at the refineries and you are selling at below the cost of production, then you create a subsidy.
“Subsidies are distortionary: first of all, get rid of the system so it doesn’t breed corruption and if there are no subsidies, with the price of oil today at $52 per barrel, this means that you might actually find that the price of petrol may be lower than what it is today.
“So there’s no question – and let us separate the issues – the subsidy is a number; the subsidy system is a system that breeds corruption, get rid of the subsidy system and then the number will be an efficient number.
“The truth is that if the currency is mispriced for any reason, then we have to address that reason why it is mispriced. So if that is done because of a fiscal crisis that we have, the fiscal crisis is not because of the currency, the fiscal price is because our revenues have dropped.
“And if our revenues have dropped, you either cut down expenditure or you stimulate the economy with borrowings and other things and now jumpstart the economy.
“Almost all oil exporting or commodities producing countries are facing the same issues and how you deal with it depends on how courageous you are to deal with the problem and the timing.
“So I submit that our fiscal issues include subsidies, spending, fiscal recklessness and corruption. If you deal with all these, the monetary suitability will follow to reinforce the fiscal policies that you have adopted.”