• Thursday, July 18, 2024
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Angola cuts fuel subsidy days after Nigeria did same

Subsidy Removal: A move with potential rewards

Angola reduced its gasoline subsidy,the same week Nigeria, Africa’s biggest oil producer, scrapped its own subsidy, causing pump prices to triple according to a Bloomberg report.

The yield on Angola’s 2028 eurobonds fell 16 basis points to 11.2 percent , the lowest in nearly two months, after the announcement. Securities due in 2032 also strengthened, with the yield down 22 basis points to 11.6 percent, the report said.

After the Cabinet meeting on Thursday in the capital , Luanda. Manuel Nunes Junior,Economic Coordination Minister said,the subsidy reduction will take effect from Friday, meaning the gasoline price will rise to 300 kwanza ($0.51) per litre from 160 kwanza.

“That’s still less than the open market price of 533 kwanza, with the difference being met by the government. Subsidies for other fuels, including gasoil, a type of diesel, will remain in place for now.” Nunes said.

“Africa’s second-biggest crude oil producer imports most of its fuel due to a lack of refining capacity and spent 1.9 trillion kwanza ($3.5 billion) last year on the support, according to the government.

Read also: Petrol subsidy removal will boost Nigeria’s Sovereign Wealth Fund -NSIA

Higher transport costs would make life harder for commuters in a country where the World Bank estimates more than half the population of 33 million live on less than $2 a day.”

“Important Saving”

“To mitigate that risk, the government will retain gasoline subsidies for taxi drivers, farmers and fishermen.
The removal of these subsidies will result in important savings, not only for public finances but also for the survival of our state-owned oil company Sonangol,” he said.

“The money the government saves will be used to fund education, health projects, housing and employment,” Nunes said.

Fitch Ratings said in a briefing note in January that the planned gradual removal of subsidies will “increase domestic pump prices and weigh on household purchasing power, likely triggering protests.” It identified that as the main political risk to Angola this year.

The International Monetary Fund has urged Angola to end the subsidies to create room for more spending on reducing poverty

The southwest African nation’s central bank plans to revise its inflation target and the outlook for interest rates now that the Finance Ministry has finalised proposals to remove the subsidies. It currently forecasts inflation will end the year at between 9 percent and 11 percent . Bloomberg said

In addition to the possible impact of higher fuel prices on inflation, a decline in exports and currency weakness are contributing to uncertainty about the outlook for interest rates, Banco Nacional de Angola Governor Jose de Lima Massano said in a May 23 interview.

The kwanza has depreciated 13.5 percent against the US currency this year to 589 kwanza per dollar.

Angola has the fourth-lowest gasoline prices in the world after Libya, Iran and Venezuela, according to data compiled by Globalpetrolprices.com. A litre of the fuel in Angola costs less than a bottle of water and is way lower than the global average of $1.28.

While the government has been trying to eliminate fuel subsidies for years, they still account for about 10 percent of the national budget, according to state asset-management institute IGAPE.