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IMF urges transparency in fuel subsidy reform

By on April 1, 2013

The International Monetary Fund (IMF) has said that lack of credibility was largely responsible for the failure of the attempted fuel subsidy reform in the country by the Federal Government.

The IMF said in its latest report that for the government to succeed in its effort at reforming the subsidy regime, it must establish credibility for its promise that the proceeds from the removal of the subsidy would actually be used for the benefit of the broad population.

But over the weekend, the Federal Government maintained that fuel subsidy will not be removed any time soon.

The IMF report observed that notwithstanding the laudable objectives of the Subsidy re-investment and Empowerment Programme (SURE-P) and the plans for oversight by a highly reputable board of directors, the new administration had yet to credibly establish that it would live up to its commitments.

On the contrary, it suffered from a very negative image of government, held by the general public. As such, the subsidy reform was viewed very suspiciously, and the general public simply did not believe that the government would live up to its commitments.

It said thorough research on the costs and benefits of subsidies was important, to be able to bolster the case for subsidy reform.
“The absence of good quantitative information on the state of Nigeria‘s refining industry and of the fuel subsidy mechanism itself allowed spurious arguments, often made by parties with vested interests, that government investment in the state-owned refineries and/or measures to stop abuse by marketers were preferable to removing the subsidies”, the report stated.

In addition, the report said that the claim that subsidies mostly benefited the poor had been based on anecdotal evidence, rather than on research based on household survey data.

The organisation said a well-thought out public information and consultation campaign is crucial to the success of a reform.
While the government campaigned vigorously for removal of the subsidies, the measure was still highly controversial when it went into effect. The backlash had been predicted. The public communication campaign lasted only six months and there was no broad popular consultation. The ministry of finance produced several short briefs to support its proposal, but these were issued several months into the campaign, and there was no comprehensive report.

A new IMF paper urges governments the world over to reform subsidies affecting products ranging from coal to gasoline.

Subsidies are intended to protect consumers by keeping prices low. But many argue subsidies are inefficient and could be replaced with better means of protecting consumers in need. This, according to the IMF, is possible if governments undertake the right reform path, and will in the process also help alleviate budgetary pressures being faced by governments.
 

 

[Business Day]