WORKERS in Nigeria’s public service have started enjoying the 40% increase in their wages as promised last month by the Federal Government, through the Minister of Labour and Productivity, Dr Chris Ngige. The minister had explained that the increase in consequential allowance will lead to a 40% rise in the income of public sector workers under the Consolidated Public Service Salary Structure (CONPSS).
That would undoubtedly mean a rise in the country’s recurrent expenditure profile with no corresponding widening of the revenue stream. Ngige further explained that the increase (peculiar allowance) is meant to cushion the rising cost of living in the country: the hikes in transportation fare, housing and electricity tariff, especially in view of the impending removal of subsidy on premium motor spirit (petrol). He indicated that the difference is already captured in the 2023 budget.
Even though beneficiaries are likely to be happy that some form of palliative has come their way; they are nonetheless not oblivious of the implications, as this type of development is always followed by a reactive increase in those areas for which the increase seek to cushion. It is worse still that only less than five percent of the country’s population is benefiting from the pay increase while the entire population would suffer the accompanying consequences.
Consequently, those not covered by the palliatives would have to scale up the prices of their goods and services to improve their revenue base to meet up with the cost of utilities and services.
Although the current state of affairs in the country makes nonsense of the current public service wage structure, economic watchers are concerned that the country may be plunged deeper into economic quagmire as it is already experiencing spiralling inflation which was put at 22.04 percent on a year-on-year basis, as at March 2023.
According to the NBS Consumer Price Index and Inflation Report released not long ago, the figure is 0.13 percent higher compared to the 21.91 percent recorded the previous month; and 6.13 percent higher than the corresponding period last year.
Although the IMF World Economic Outlook Update projects a stable economy for Nigeria by the time the Buhari administration will be pulling out, the situation on ground does not look that positive. The report predicts a 3.2% growth level for 2023 and 3.0% in 2024. The Bretton Wood institution had earlier reviewed its 2022 projection from 2.9% to 3.0%, an indication that there was an improvement in the parametres that signposted the initial projection. This is in spite of the global slowdown and high inflation rate.
Even as the projections indicated that the economy has continued to perform above the global average; and better than those of some advanced economies, it also noted that debt levels remain high, limiting the ability of fiscal policymakers to respond to new challenges.
Cheery as the IMF projections sound, the KPMG Global Economy Outlook Report of 2023 projects 40.6% increase in the country’s unemployment rate for the first half of 2023, from 37.7 percent in 2022. It was emphatic that the number of job seekers would rise in 2023 due to decreased economic growth and the inability of the economy to absorb the about five million graduates released into the job market every year. It painted a gloomier picture for 2024. Unlike the IMF projection, the KPMG report predicted that slow economic growth and persisting foreign exchange market would welcome the new administration into office. There was a caveat though: except there is a marked improvement in revenue haul.
The country’s debt level keeps rising and repayments gulp almost 96 percent of the country’s revenue, according to economy watchers. With such a heavy debt burden, the fluctuating production levels of crude oil and the volatile nature of oil prices in the international market, the question now would be: how realistic and sustainable is the proposed 40% salary increase for public sector workers, taking into consideration the aforementioned, the timing and possibility of sustained implementation?
It is obvious that the thought of an increase in the wages of public sector workers is a direct consequence of the plan to completely remove subsidy on refined petroleum products in the country’s market.
Removal of subsidy has been contemplated over a very long period but successive governments lacked the political will to hit it off, in spite of calls from knowledgeable quarters.
There has been a groundswell of requests for the subsidy to be removed and the country’s four refineries revamped to boost local production and reduce importation which is the main trigger for the subsidy. The Nigerian Labour Congress seemingly is the lone voice against the matter of subsidy removal, although it is in tune with the revamp of refineries.
Nonetheless economic experts, including the IMF, have argued that the removal of subsidy will definitely reduce the deficit component of the country’s annual budget and stem the urge for further loans.
Particularly, the Buhari administration which listed subsidy removal as one of the decisive actions it would take, eventually developed cold feet and threw up excuses of further impoverishment of the people if the action is taken immediately. It insisted that actions that would cushion the effects of the likely fallouts must first be taken before the action is implemented. It pointed to the massive infrastructural provision and policy initiatives of the administration as some of the actions taken to create enabling environment for inclusive growth and development. Recently, however, it bowed to pressure from public sector workers and decided on a wage increase.
Undoubtedly, the increase in workers wage bill will put more strain on the country’s treasury, particularly considering the already crippling debt profile and repayment arrangements. Commentators describe using more than 90 percent of the country’s revenue to service debt as madness. They call for a proper restructuring of the country’s economic framework to address the issue, including putting an end to the subsidy regime.
On Tuesday, May 9, 2023, Kaduna State Governor, Nasir el- Rufai; his Anambra State counterpart and former Governor of the Central Bank of Nigeria (CBN), Chukwuma Soludo and another former CBN Governor, Sanusi Lamido Sanusi, joined in calling for the immediate dismantling of the fuel subsidy structure which they insist has negatively affected the country’s economy. They spoke during a panel session at the policy conversation on “How Nigeria can build a post-oil economic future” at a symposium jointly hosted by Agora Policy, a Nigerian Think Tank, and the Carnegie Endowment for International Peace.
El-Rufai would rather prefer ploughing back the money saved from subsidy removal into more pragmatic and sustainable areas, including investments in security, social protection, infrastructure on health and education, among others. He pointed out: “currently we are looking at N6 trillion on subsidy but go and check the national budget on infrastructure, on health and education, it is not up to that and does not make any sense, so we need to end the subsidy.”
Rather than palliatives to cushion deliberately orchestrated hardships, Soludo advocated institutional reforms and a competitive system, beginning with mainstreaming case studies and utilising lessons from those that actually worked, and replicating them.
Former Managing Director of Access Bank, Aigboje Aik-Imuokhede, noted at the forum that oil subsidy was not grounded on strategic thinking but was purely political; but Sanusi said the country needed to return to the era where politicians respected the independence, integrity and autonomy of institutions and where institutions were held accountable by the law setting them up, to perform duties. Institutional reforms’ is key to achieving speed and sustainable prosperity; and we completely agree with these prescriptions.
There seem to be a near consensus on the issue of subsidy removal; therefore the labour unions must begin to think more about sustainable prosperity than hanging onto palliatives. They should go beyond the regular resort to strike threats at the mention of every policy initiative and see through the immediate pains to sustainable gains. They should begin to look at the big picture. Increase in salary of public sector workers might serve an immediate need, but experience over the years has shown that it leads to further strain on the economy and subsequently, further impoverishment of the people.
To bring down the wage bill, government should, as a matter of priority, prune its appointees/aides; reduce the cost of running the National Assembly, and strip ex-political office holders who are on huge ‘pensions’ and still receiving humongous entitlements in the Senate of those largesse. That would show some seriousness on government wanting to conserve funds for more beneficial projects. Thereafter, subsidy can be removed and recovered money from that used to invest in health, transportation, energy and security infrastructure. Except there is a direct benefit to the masses, removal of subsidy would continue to be opposed.
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