By Chido Nwakanma
More than 25 years later, and despite the evidence to the contrary, the International Monetary Fund continues the untruth that subsidy removal benefits the poor because only those with cars enjoy subsidies. The assertion contradicts conventional economics and applies only to Africa. The latest vendor of that claim is suitably and deliberately an African, Mr Abedi Sellasie, Director of the African Department of IMF.
Mr Sellasie spoke at the IMF’s Spring Meetings in Washington DC. He commended the Nigerian government’s abrupt removal of subsidies on 29 May 2023 in compliance with IMF prescriptions. He avoided speaking of the maelstrom that has resulted in Nigeria.
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In what some news reports termed “insights”, Sellasie asserted: “Subsidies are about resource allocation internally within Nigeria. Nigerians, the people of Nigeria, pay for these subsidies.
“And what’s the reason why we counsel against such generalised subsidies? It is very simple. It tends to be highly regressive, meaning the benefits of such fuel subsidies tend to accrue to the rich.
“People driving these large cars, with big houses, 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 in Nigeria, but also the poorest segments of society are losing out, and resources could instead be used to improve conditions for poorer people instead of accruing to rich people.
“Removing the supposed subsidy on that date turned the economy and the country upside down and downside up. It created a miasma.”
“That’s why subsidy reform is important. We applaud the government for the steps it took to reduce the extent of subsidies. I think that as oil prices have become volatile, the level of subsidies has also moved up and down. But I think, you know, the direction of travel is to remove the subsidies and use the resources to provide social protection for the most vulnerable households”.
The IMF claim that subsidy removal benefits the poor continues to fly against the evidence and insults our collective intelligence. Our experience since 29 May 2023 tells a different story. Removing the supposed subsidy on that date turned the economy and the country upside down and downside up. It created a miasma.
The federal government is still battling the consequences of that compliance. While citizens are suffering, all levels of government received increased revenues, averaging 45 per cent. Have citizens seen any benefits or improved infrastructure?
A second falsehood the IMF pushes for its prescription is the claim that the alleged savings would be deployed to provide social infrastructure. This is untrue. From the first time during Babangida, subsidy removal has denied the poor and vulnerable social infrastructure.
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Subsidy removal was integral to Babangida’s IMF-supervised Structural Adjustment Programme. It led to the collapse of education, healthcare, transportation, and other social benefits. Nigerians began the Andrew checking out movement that has now returned as Japa.
None of the IMF-promised benefits in deploying the alleged savings to “provision of social infrastructure to the poor” happened, and none is happening currently. It did not happen in any other African or Third World country.
The primary arguments for removing fuel subsidies are more efficient resource allocation by discouraging fuel overconsumption, ending pollution, global warming, and road accidents, known in economics-speak as “negative externalities,” alleged inequality in benefitting wealthier households more than poor ones, and fiscal sustainability.
The arguments against removing fuel subsidies are stronger, empirical, and resonate more with African realities. First is the disproportionate negative impact on the poor, contrary to the fiction of the IMF. Increased fuel prices have immediate and inflationary effects that impact the purchasing power of the poor and constrict their access to essential goods like food and medicine. Nigerians have been crying about food and medicine since May 2023.
Loss of fuel subsidies affects agricultural production negatively. Farmers cannot afford the essential support services for agriculture.
The removal of fuel subsidies removes trust in the government. Since Babangida, Nigerian governments have suffered severe distrust over the false promises they made following the IMF about the benefits of subsidy removal. Indeed, the rogue Sani Abacha made the first effort to provide infrastructure with the excess funds through the Petroleum Trust Fund.
The IMF has painted subsidies as a scarecrow in Africa and the Third World. On the contrary, subsidies are retained in the affluent Western world and seen as a positive thing for governments to do.
A subsidy is a government benefit given to an individual, sector, or economic activity to promote specific goals or correct some perceived wrong. It can be direct (such as cash payments) or indirect such as tax breaks. The subsidy is typically given to remove some burden, and it is often considered to be in the overall interest of the public.
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Western countries continue to give direct subsidies to citizens through welfare payments and unemployment benefits. Under Barack Obama, America successfully introduced the Affordable Care Act health subsidy, which allowed access to health insurance for the poor and vulnerable. For Nigerians, the fuel subsidy in place since 1973 was the only benefit they derived from the government as an indirect subsidy.
As in the West, subsidy in Nigeria has more than a fiscal dimension. Its opportunity cost elements should be part of the equation and conversation. The IMF single-track tune is now suspicious for flying against the practice in the West and the realities of Nigeria and the Third World.
