The International Monetary Fund (IMF) has urged the federal government to transfer the funds spent on petrol subsidies to vulnerable households in order to mitigate the effects of food shortages and inflation caused by climate change and flooding.
Abebe Aemro Selassie, director of the African Department of the International Monetary Fund, made this statement in Washington during a press briefing on the regional economic outlook for Africa. He emphasized that gasoline subsidies benefit wealthy families and households more than they do poor households.
In the Africa Regional Outlook, the IMF stated that addressing food insecurity to protect the most vulnerable is one of four important policy challenges facing African countries, with an emphasis on effective and cheap approaches that redirect scarce resources to those who need them most.
Selassie, commenting on the choices open to the Nigerian government in terms of support for poor households, stated, “Nigeria could have benefited even more if there were more targeted means of assisting individuals, as opposed to the current usage of broad-based gasoline subsidies. Consequently, oil prices have increased dramatically, but the quantity of resources accruing to budgets and foreign accounts has been severely constrained due to the country’s widespread subsidies.
“I think we have been long on record, flagging that generalised subsidies like this one are extremely costly, and secondly, they’re extremely regressive. So, they support families and households that are richer more than they do poorer households. A better policy in our view would be to find a way to redirect these resources to the most vulnerable households and supplement that with investments in health and education that Nigerians so desperately need.
“When you have a big surge in prices, it is understandable that governments will want to do something to smooth the increase in prices, including fuel subsidies, but those should be temporary and phased out and communicated in a very clear way.
“Ultimately, it is a political decision for Nigeria, and if that is how the country decides how resources should be used, that’s how it will be used. But, you know, our role here is to flag that there are better options that could be done where economic efficiency could be facilitated in Nigeria.”