…As total loans to Africa since COVID-19 era hit $58bn
From Uche Usim, Washington DC
The International Monetary Fund (IMF), on Friday, explained why it insisted Nigeria junked the fuel subsidy regime, a controversial move many citizens have described as a death knell.
According to the Fund, the scheme was an opaque programme designed to rob the poor to bless the rich and had no justification to exist as Nigeria and Nigerians were never better for it.
The Director, African Department of the Fund, Mr. Abebe Selassie, who spoke on the heated issue at the ongoing Spring Meetings of the IMF and World Bank in Washington DC, said it offered a sustainable blueprint on how the government could provide social safety nets to accommodate the poor.
He said: “Subsidies are about resource allocation internally within Nigeria. So Nigerians, the people of Nigeria pay for these subsidies.
“And the reason 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.
“So it’s the rich people that are driving these large cars, with big houses, who want 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 the 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 the direction of travel, I think, is to remove the subsidies and use the resources to provide social protection for the most vulnerable households.”
Furthermore, Selassie revealed that the IMF has provided $58 billion to African countries since the outbreak of the COVID-19 pandemic and pledged it would do more to help the region build resilience.
The IMF chief also warned African countries against commercial loans for the purposes of refinancing because of the current rate hike in most economies.
Rather than toeing that path, he suggested that sub-saharan nations battling debt service challenges should look inwards for domestic resource mobilization, which would be easier to deal with.
“We believe that countries should be careful about going to the market to borrow from securities that are pending.
“Cost of refinancing has been on the high side. We advise countries to look at the weighted average of refinancing. The cost of such refinancing is not going to be ideal at this time”, he advised.
Selassie also flayed the practice of discriminatory tax exemption to some companies and not extended to others, thus shutting the room to optimizing tax revenue, creating an unequal playing field and ruining chances of healthy competition needed to bolster the economy.
On the positive developments in Africa, Mr. Abebe said that after four challenging years and multiple shocks, the Sub-Saharan Africa economy appears to be trudging on slowly but steadily.
“We expect economic growth to rise to 3.8 percent in 2024, from 3.4 percent last year. After peaking at almost 10 percent in late 2022, inflation has nearly halved to around 6 percent 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 percent of GDP, halting a 10-year upward trend”, he said.
He called for global support from the international community to essentially grow the African continent.
