Wednesday, January 26

Nigeria plans $ 5.8 billion in cash handouts to replace fuel subsidies

Nigeria plans to give cash grants to the poor, which can cost the government 2.4 trillion naira a year ($ 5.8 billion) in an attempt to replace fuel subsidies.

The government will give 5,000 naira each to up to 40 million people each month, starting in July, when fuel subsidies end. A new oil law forces the government to allow market forces to determine gasoline prices. The cash transfers will take place over a period of six to 12 months, Finance Minister Zainab Ahmed said on Thursday.

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That’s when Nigerians will vote to elect at least 30 state governors and a successor to President Muhammadu Buhari.

Reducing support for fuel will support the ruling party’s long-term political goals of freeing up revenue and allowing the party to bolster support among poor Nigerians ahead of the 2023 elections, the Eurasia Group said in a note to clients on Thursday. “The category of voters that is most likely to benefit from the transportation subsidy is most likely to vote for Buhari’s party, and it is also the one that benefits the least from current gasoline subsidies,” said Eurasia Group.

Cash support programs have helped the poor from Togo to India, but in a nation where few have bank accounts, the process can lead to corruption, said Cheta Nwanze, senior partner at SBM Intelligence.

The government will ensure that payments go to legitimate recipients by using biometric verification numbers, national identity cards and bank account number, Ahmed said last week. It is working with the World Bank to design and finance the plan.

Nigeria wants to eliminate fuel subsidies because the nation’s budget can no longer contain the financial burden. The subsidies will bring the budget deficit to 6.3% of economic output this year, according to the International Monetary Fund.

The subsidies currently cost the government about 250 billion naira a month, Ahmed said. The IMF recommended that the West African nation eliminate subsidies and implement a “well-targeted welfare plan” to cushion the negative impact of cutting subsidies on the poor.

The most populous country in Africa is home to the largest number of people living in extreme poverty in the world, or those who walk away on around $ 1.90 a day. Therefore, the monthly subsidy would mean a significant increase in the income of these people.

Still, the cost of 2.4 trillion naira a year could become a heavy burden and the successor to President Buhari might have to make the decision to extend or end it.

The West African nation does not have a good record of making politically difficult decisions. He has fought for decades to end fuel subsidies, which are expected to cost 3 trillion naira over the next 12 months if oil prices remain at current prices. Furthermore, it has not been able to end electricity subsidies.

These payments are not sustainable because they are simply another consumer subsidy that is not productive in any way, Nwanze said.

“I would have preferred such grants to go to small businesses so they can expand and take a toll on our pretty high unemployment rate.”

© 2021 Bloomberg

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