• Sunday, February 25, 2024
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Egypt dumps fuel subsidy. Should Nigeria follow suit?

Egypt dumps fuel subsidy

Egypt has finally exited from fuel subsidy regime with its latest push, raising domestic prices by between 16 percent and 30 percent to bring them into line with their real cost, as it nears the end of an IMF-backed economic reform programme. The reform had led to a boost in investment in the oil and gas sector especially through foreign direct investment.

The price of petrol rose by 18.5 percent to $0.48 a litre, and diesel rose by 22.7 percent to $0.41 per litre. The price of cooking gas cylinders rose by 30 percent to $3.90 for domestic use and $7.80 for commercial use.

Scaling back fuel subsidies that have been a strain on the budget for decades was a key plank of a 3-year, $12 billion reform package signed with the International Monetary Fund in 2016, as Egypt’s economy struggled to recover from the turmoil that followed its 2011 uprising.

Most fuel prices are now in line with their costs, though the government is still subsidising fuel for bakeries and power generation, a petroleum ministry official said. But the changes will push up prices for transport, food products and other goods.

Energy subsidies had eaten up as much as 20 percent of the government’s budget in recent years. Analysts had speculated that government would wait until after the end of the African Cup of Nations – the continental soccer championships, which Egypt is hosting until July 19, before announcing the price rises.

The quest to wean Egypt from petroleum products’ subsidy started in 2016, a journey successive administrations in Nigeria have been too scared to try or when they do, it is done reluctantly.

Nigeria’s fuel subsidy has spiraled out of control. The subsidy costs have grown sharply from a daily average cost of N774m in March 2018 to N2.4bn per day in May, 2018. The country may have spent about N10 trillion on subsidy between 2006 and 2018, a report by BudgIT, a public finance focused Non-Governmental Organisation (NGO) stated. The report also indicated that the subsidy regime has opened Nigeria’s public finance to huge corruption and illegal exportation of petroleum products to neighboring countries.

“Nigeria remains the only OPEC country that imports petroleum products,” Chukwueloka Umeh, executive director at Nestoil Group, said during the 2019 Nigeria Oil and Gas conference held recently in Abuja.

It is a politically unpopular move to make Nigerians to pay more for fuel. But the downside of the huge petroleum subsidy payments by the government has certainly outweighed the benefits. Government should be decisive about it and set up a definite time frame to actualize full deregulation.