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What’s wrong with Tinubu’s palliative programme 10 Aug 2023

President Bola Ahmed Tinubu came into office at a time the financial conditions of the country and the welfare of the people, which had continued to worsen over the last decade, were at the verge of a disastrous collapse. In 2022, the financial stress was headlined by a towering debt-service obligation, which gulped over 70 percent of government revenue. The naira also depreciated by 8.6 percent last year as foreign exchange flows into the country continued to dip amid growing import costs. The welfare challenge had seen the national poverty rate grow above 40 percent.

It was a choice to be made, whether the financial or welfare challenge should be the immediate priority of the new administration. Indicating the former as its prime concern, the government quickly ended the subsidy on Premium Motor Spirit (PMS), colloquially referred to as petrol, and introduced a floating exchange rate policy. By ending the petrol subsidy, the administration will save N3.6 trillion in the second half of the year. The new exchange rate policy, which brings official and parallel markets rates into parity, would provide the government higher naira value from its foreign exchange revenue derived from oil & gas sales, and possibly encourage capital importation into the country.

But either of these two policies was going to have a negative impact on the welfare of the generality of Nigerians. In quick succession, however, the government decided to introduce both. Only weeks after these policies had started to seriously erode the welfare of the people, through higher costs of transportation and consumer goods, did the government announce a palliative programme that would see 12 million Nigerian households receiving N8,000.00 monthly for six months, in conditional cash transfers.

Nigerians have criticised the palliative programme in relative terms. While it proposes to boost the income of 12 million poor households with the disbursement of N500 billion over a six-month period, a supplementary N70 billion has been allocated for the welfare of the 469 members of the National Assembly. Therefore, while poor and vulnerable Nigerians would each be getting N7,999.98 over six months (based on an estimated average of six persons per family and the N8,000.00 monthly conditional cash transfer per family), the lawmakers, who already enjoy jumbo emoluments, would each be getting an additional N149.25 million.

By the way, the math of the palliative programme, which the government has now withdrawn for redesign, was wrong. Based on N8,000.00 monthly transfer to 12 million households for six months, the size of the programme should have been N576 billion, not N500 billion that was announced. This does not even factor in the cost of implementing the programme.  

But it is possible to evaluate the postponed palliative programme in itself, even regardless of the issues that are likely to dog its administration, of which targeting, transparency, and accountability are by no means the least important.

The major issue with the programme now under review was its proposed size. It was too small to make any appreciable impact. For instance, looking at nutrition, which is a major challenge for poor households, the N1,333.33 the beneficiaries were to receive per head every month was not going to afford an egg per day for 30 days.

Viewed as a demand-side intervention, the government could have earmarked up to N4.2 trillion for a stimulus package in H2 this year, which would be the equivalent of the N3.6 trillion budgeted for the petrol subsidy in H1 2023 plus the quota for June that was unspent as the subsidy was terminated at the end of May. Boosting demand for locally-produced goods can have multiple positive impacts, including increased production, job creation, and price reduction. It would also avoid the criticism of the petrol subsidy as essentially subsidising import.

However, such a large intervention could be inflationary. But as the June 2023 inflation data shows (while the questions on the credibility of the better-than-expected data are acknowledged), the combined inflationary impact of the 213 percent increase in the pump price of petrol since May 31 this year and 69 percent depreciation in the naira value over the same period has been moot. Slower real GDP growth is likely to be the bigger impact, as production and consumption are currently stifled, and have to be adequately stimulated.

Nevertheless, one single programme, like the conditional cash transfer to poor households, cannot arrest the welfare, production, and productivity impacts of the acute economic policy adjustments of the subsidy removal and floating exchange rate. Time is now of the essence in introducing multiple interventions, including ones that directly support production and employment. Further delay in introducing such programmes could cause socio-economic damage and political implosion, which will take a long time to recover from.

In fairness to the new administration, its two problematic policies had enjoyed a degree of popularity in some quarters for years. This could have encouraged President Tinubu to take the policy plunges. As it has become apparent now, not enough analysis and scenario testing were done on the likely impacts of the policies. Unfortunately, similar lack of rigour – and competence – have so far dogged policymaking by the administration, leading to an embarrassing withdrawal of its first programme of intervention.

The government must change its thinking. The welfare of Nigerians should take precedence over the financial considerations – not the other way around. With the right policies, improvement in the fiscal conditions and inflation would take hold over the medium- to long-term. But support for the welfare of Nigerians must begin from the immediate term.