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Finance minister okays fuel subsidy removal, but it’s complicated

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Finance minister okays fuel subsidy removal, but it’s complicated

Nigeria’s Finance Minister, Zainab Ahmed, on Thursday, agreed with the Director General of the International Monetary Fund (IMF), Christine Lagarde, on the need for the removal of fuel subsidy.

  • “The advice from the IMF on fuel subsidy removal was a good one,” Ahmed said at the sidelines of the ongoing IMF/World Bank Spring Meetings in Washington D.C . “But we have to implement it in a manner that is both successful and sustainable.”

How to remove the subsidy, according to the minister:

  1. Educate Nigerians: “We are not in a situation to wake up one day and just remove subsidy. We have to educate the people, we have to show Nigerians what the replacement for those subsidies will be. So, we have a lot of work to do,” she said.
  2. Don’t remove it all at once: “We also need to understand that you don’t remove large amounts of subsidy in one go, it has to be graduated and the public has to be well-informed on what you are trying to do.”

Why it matters: Nigeria has reportedly spent over N10 trillion on fuel subsidies in 13 years, monies that may have been put to better use in other human and infrastructure development efforts, especially as poverty continues to be on the rise in the country.

  • As Lagarde said, “If that was to happen [removal of subsidy], then there would be more public spending available to build hospitals, to build roads, to build schools, and to support education and health for the people.”

But how should it be done?

  • According to Lagarde: The ‘how’ is “more complicated.” The IMF however favors deregulation but says the government needs to provide a “social protection safety net… so that the most exposed in the population do not take the brunt of those removal of subsidies.”
  • The finance minister is however of the view that government continues to fix prices for some time rather than just totally deregulating at once.

Matter for debate: There is no consensus on the fuel subsidy situation. For a long time, officials of the current administration insisted – contrary to reality – that they had stopped the payment of the subsidies.

  • Vice President Yemi Osinbajo made claims in 2016 that “the downstream sector has been deregulated with the elimination of petroleum subsidy. This policy has removed from government, a burden of not less than N15.4 billion monthly.”
  • However in the Vice presidential Debate conducted in December 2018, he admitted that the subsidy regime is still in place. “If you are to remove subsidy, petrol price could go as high as N220 per litre or higher. There is no country in the world, not even the wealthiest ones that don’t run some type of subsidy or the other,” he said.
  • Then there is President Buhari who in 2017 ‘ordered’ the NNPC not to remove subsidy.
  • Then there is the labour movement which vehemently opposes the removal.

Tough road ahead.

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