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Tuesday, January 31, 2023

Ending fuel subsidies: A call for careful planning

HomeAYV NewsEnding fuel subsidies: A call for careful planning

Ending fuel subsidies: A call for careful planning

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Additionally, opponents suggested that the Nigerian government should instead focus on recouping the billions of Naira that have been stolen or misused by corrupt government officials and defended fuel subsidies as “one of the few tangible benefits they receive from a corrupt and inefficient government.” As the violence escalated, a compromise between the government and supporters of fuel subsidies was reached and thereafter legislation to that effect was signed by President Muhammadu Buhari.

Eric Morris’s article titled “Fuel Subsidies: The World’s Dumbest Transportation Policy?” and ED Dolan, “why Fuel Subsidies are bad for everyone,” enumerated disadvantages linked to fuel subsidies which seem to clearly reflect and amplify the current Sierra Leone situation, namely:

 That fuel subsidies are expensive and amount to free money to the wealthy who can afford to buy cars.

 That fuel subsidies discourage consumers from buying or bringing into the country fuel-efficient cars. Most vehicles currently used in Sierra Leone excluding some owned by the government, are second hand with considerable pollution problems. These cars emit hazardous air pollutants inhaled by the poor in urban centers whose gasoline is partially paid for by the government.

 That fuel subsidies create an incentive for smuggling, from high-subsidy countries to low-subsidy ones. This is particularly germane to Sierra Leone and the neighboring Republic of Guinea, where the former currently maintains high fuel subsidies and the latter doesn’t, causing Guineans to cross the border and fill up their cars in Sierra Leone with inexpensive gasoline subsidized by the government. No wonder Kambia District which shares borders with the Republic of Guinea has one of the largest concentrations of petrol stations in the country, albeit car ownership in the same location is relatively rare. One wonders who owns the petrol stations in the above areas, and what influence would these individuals have in the current debate to eliminate fuel subsidies?

 Most of the food produced in Sierra Leone is by female farmers. A subsidy and credit system for farmers will serve the country better in the long run. It addresses the plight of the poor, and helps to empower women – a much needed and overdue effort for Sierra Leone. Besides, a subsidy for farmers would be beneficial for the entire country since it will provide an incentive for many of our youths to return to the provinces in search of jobs in the agricultural sector thereby easing congestion in Freetown. Overall, it makes more sense to subsidize food production for the benefit of all Sierra Leoneans, rather than maintaining gasoline subsidies for a handful of wealthy indigenous car owners and beneficiaries from neighboring countries.

 That the money government spends on fuel subsidies could instead be used on financing and maintaining reliable government bus services, rebuilding infrastructure, expanding health facilities nationwide, and investing on much needed educational programs.

As noted by the International Monetary Fund (IMF), transition from subsidized to non-subsidized fuel can be problematic. However, the chances of success are greatly improved if the following actions are implemented prior to phasing out the subsidies.

 Better transparency, planning, communication, and consultation prior to implementation of price increases.

 Replacing subsidies with appropriately targeted policies to aid the poor

 Measures to depoliticize future energy prices, for example, by establishing automatic formulas that link domestic prices to world prices.

 Sound macroeconomic and monetary policies to prevent fuel price increases from feeding through into self-sustaining inflation.

Accordingly, the quickest and most efficient way to accomplish the termination of fuel subsidies is for the government to make haste slowly, so people don’t feel they are being rushed.

In other words, this is the time to avoid snap decisions to minimize the potential for chaos.

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