The Federal Government of Nigeria has been cautioned by the International Monetary Fund (IMF) to reduce spending on oil subsidy. The Fund cited the drop in global oil prices and lean resources as a reason for the warning.
The Details: IMF predicted growth in sub-Saharan Africa to remain at 3.2% in 2019 and rise to 3.6% in 2020 in its economic outlook of the region for the coming year.
Citing data available for sub-Saharan African countries as of 2017, IMF said subsidies and other transfers from the government account for 25% of expenses.
“Fuel subsidies tend to be poorly targeted, foster over-consumption, curtail investment and maintenance in related sectors and crowd out more productive government spending.
“Some countries need to take the opportunity afforded by low oil prices to reduce fuel subsidies to free up additional fiscal space (Cameroon, Nigeria, Senegal), as was done in Mozambique and South Sudan and is being pursued by Burkina Faso,” the IMF said.
The IMF advised Nigeria on the need to phase out implicit fuel subsidies and reduce the gap between the poor and rich in the country. The Fund also advocated for the need for Nigeria to enhance its social safety nets for the development of the economy.
What you should know: It can be recalled that on May 11, 2016, the Federal Government announced an increase in the price of petrol from N135 to N145 per litre, a move that signalled the end to fuel subsidy payment to private marketers.
However, the government later resorted to subsidy regime following the increase in the landing cost of petrol on the back of rising crude oil prices, with the Nigerian National Petroleum Corporation, the sole importer of the product, bearing the burden of the subsidy.
Similarly, a report by PricewaterhouseCoopers (PwC), a global accounting and consulting firm stated that the Federal Government spent about N2.3 trillion as subsidies on petrol and power consumption between 2015 and 2018.
According to the report, the highlighted subsidy expenditures within the reviewed period represent 17% of the country’s current foreign reserves and 26% of the 2019 federal budget.