The International Monetary Fund (IMF) said in 2023 that there is an urgent need for Nigeria to completely phase out costly fuel and electricity subsidies as part of measures to address its economic challenges.
These subsidies, deemed inefficient and ineffective in reaching intended beneficiaries, were identified as worsening the nation’s fiscal challenges and hindering efforts to address poverty and food insecurity.
The Director, African Department of the Fund, Abebe Selassie explained why Nigeria was ask to remove subsidies at the ongoing Spring Meetings of the IMF and World Bank in Washington DC, United States.
His words: “Subsidies are about resource allocation
internally within Nigeria. So Nigerians, the people of Nigeria pay for these
subsidies.
“And what’s the reason why we counsel against such
generalised subsidies is very simple. It tends to be highly regressive, meaning
the benefits of such you know, fuel subsidies tend to accrue to the rich and
segments to reach out to people and the poor people.
“So it’s people that are driving these large cars, with big
houses are wanting to see subsidised fuel. They’re the ones benefiting relative
to the poor and vulnerable in Nigeria.
“So you know, not only people paying for the subsidies
Nigeria, it’s the poorest segments of society that actually are losing out and
resources could instead, of course, be used to improve conditions for poorer
people instead of accruing to rich people.
“That’s why subsidy reform is important. We applaud the
government for the steps government took to reduce the extent of subsidies. I
think as oil prices have become volatile, the level of subsidy has also moved
up and down. “But I think you know, the direction of travel, I think, to remove
the subsidies and use the resources to provide social protection for the most
vulnerable households.”
Mr. Selassie revealed that the IMF has provided the sum of
$58 billion to African countries since the outbreak of the COVID-19 pandemic
and pledged it would do more.
The IMF chief cautioned African countries against commercial
loans for the purposes of refinancing because of the current rate hike in most
economies.
He advised that instead, countries South of the Sahara that
have debt service challenges should look inward for domestic resource
mobilization, which would be easier to deal with. The Director criticised the
practice of discriminatory tax exemption to some companies and not extended to
others.
These special favours to some companies, he observed reduce the effectiveness of governments to optimise tax revenue.
“Mr. Abebe said that after four challenging years and
multiple shocks, Sub-Saharan Africa’s economy appears to be on the mend.
“We expect economic growth to rise to 3.8 per cent in 2024,
from 3.4 per cent last year. After peaking at almost 10 per cent in late 2022,
inflation has nearly halved to around 6 per cent in the early part of the year
thanks to decisive action by central banks.
“This includes slower food price increases, a positive
development for a region where the cost of crises has been acute in recent
years. In addition, fiscal consolidation efforts are starting to pay off, with
the median public debt stabilizing at around 60 per cent of GDP, halting a
10-year upward trend.
“And with global financial conditions easing, a few
countries have been able to return to international markets, ending a two-year
hiatus. These are encouraging signs.”
The Missing Chief said, however, “ the region is not out of the woods yet. Far too many countries still face a funding squeeze.
Also, IMF Managing Director, Mr. Kristalina Georgieva,
described as “heart-breaking”, the situation in which African countries spend
large amounts of their revenue on debt servicing.
Her words, “African countries spend on average, 12 percent
of their revenue on on debt servicing. This is more than double from the Las
decade. They were at 5 percent a decade ago.
“What is heartbreaking is that in some countries, the debt
payments is up to 20 per cent of revenues.
“What does that mean? It means that what could have gone to
education, health, for investments in infrastructure and jobs is being sucked
away by debt servicing. The ground for public capital to come in.
“We know that part of the reason is that interest rates are
quite high. So what does it translate into for authorities in Sub-Sahara
Africa?
“First, we see that those who have worked on public
finances, to clean clean the ground for private capital to come in are doing
better.
“When you have a tax/revenue of 26 per cent like Cote
d-Ivoire, you can bear the debt burden. When you 12 per cent to GDP you
cannot.”
The MD said that the IMF’ major peg of interaction with
member countries in the region was focusing on the mobilisation of domestic
resources, improving public spending and mobilising local savings with which to
achieve growth prospects.
She added that African countries must keep their eyes on
inflation because that problem remains unsolved.
Ms. Georgieva noted that Africa was blessed with huge
potential, with huge a youth population that was earger to work and that its
leaders should allow Africa’s resources to work for Africans.
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