Nigeria plans $5.8bn in cash handouts to replace fuel subsidies
Nigeria is planning to give cash handouts to the poor, that
may cost the government 2.4 trillion naira a year ($5.8 billion) in a bid to replace
fuel subsides.
The government will give 5,000 naira each to as many as 40
million people every month, beginning from July when fuel subsidies end. A new
petroleum law compels the government to allow market forces determine gasoline
prices. The cash transfers will happen over a period of six to 12 months,
Finance Minister Zainab Ahmed, said Thursday.
That’s when Nigerians will vote to elect at least 30 state
governors and a successor to President Muhammadu Buhari.
Cutting fuel support will support the ruling party’s
long-term policy goals of freeing up revenue while allowing the party to
bolster support among poor Nigerians ahead of the 2023 polls, Eurasia Group
said in a note to clients Thursday. “The category of voters who are most likely
to benefit from the transport grant are more likely to vote for Buhari’s party,
and they also benefit the least from the current gasoline subsidies” Eurasia
Group said.
Cash support programs have helped the poor from Togo to
India but in a nation where few have bank accounts, the process may lead to
corruption, said Cheta Nwanze, a lead partner with SBM Intelligence.
The government will make sure that the payments go to the
rightful 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 fund the plan.
Nigeria wants to scrap fuel subsidies because the nation’s
budget can no longer contain the financial burden. The subsidies will drive
budget shortfall 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 do away with the subsidies and implement a “well-targeted social
assistance plan” to cushion the negative impact of cutting subsidy on the poor.
Africa’s most populous country hosts the world’s largest
number of people living in extreme poverty, or those who leave on about $1.90 a
day. The monthly grant would therefore be a significant boost in income for
such people.
Still, the 2.4 trillion naira a year cost could become a big
burden and President Buhari’s successor may be saddled with the decision of
extending or ending it.
The West African nation does not have a good record of
taking politically difficult decisions. It has struggled for decades to end
fuel subsidies, which is expected to cost 3 trillion naira over the next 12
months if oil prices remain at current prices. In addition, it has been unable
to end electricity subsidies.
These payments are not sustainable because they are simply
another consumption subsidy which are not productive in any way, Nwanze said.
“I would have preferred such grants go to small businesses
so they can expand and put a dent in our rather high unemployment rate.”
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