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Federal Govt Working on Incremental Removal of Fuel Subsidy – Minister

The minister of Finance, Budget and National Planning, Mrs Zainab Ahmed has hinted that the executive arm of government is proposing an incremental removal of fuel subsidy, as she stated that subsidy is a problem which could make the country’s deficit soar beyond expectation, Leadership reports.

Speaking at the 10th African Fiscal Forum, titled The Political Economy of Fiscal Reforms organised by the International Monetary Fund (IMF) virtually yesterday, Ahmed said the rising level of global oil prices is putting further strain on the government’s budget deficit.

The minister while discussing the moves of the government to increase its revenue base said the government had been able to remove subsidy on electricity through a gradual process and will be using the same tactic on removal of fuel subsidy.

“We are cleaning up our subsidies, we had a setback. We were to remove fuel subsidy by July this year, but there was a lot of push back from the polity. We have elections coming and also because of the hardship that companies and citizens went through during the Covid-19, we were just that the time was not right. So we pulled back on that. But we have been able to quietly implement subsidy in the electricity sector and as we speak, we do not have subsidies in the electricity sector.

“We did that incrementally over time by carefully adjusting the prices at some levels, while holding the lower levels down. Subsidy is a huge problem for us. It has turned up our deficit to much higher level than we planned. What is happening now to the global oil prices is also going to perhaps worsen matters.

“The current review we are doing is to hold the subsidy at the level in which it is planned. We are currently doing our budget amendment to accommodate the incremental process as a result of the reversal of the decision and we want to cap it at that.”

Noting that the government is in the process of amending the budget to accommodate fuel subsidy she said “hopefully the parliament will agree with us and we are able to at least contain and plan the subsidies. Otherwise the way things are going now, we won’t even be able to predict where the deficit will be as a result of the fluctuation in the global market.”

On the success of increased revenue generation, she added: “We have also enhanced our budget process. Three years ago, we had no government enterprise on the national budget, just the government itself. We started with 10, three years ago.”

“Two years ago, we brought in 40 and now we have all the government owned enterprises which is about 61 agencies in the national budget. So, we are able to see the whole of the revenue and the whole of the expenditure. This is enhanced also by automation in terms of the public financial management. As a result of doing that, we have been able to see the need to refine our fiscal laws. So right now, for the past three years, we are doing annual finance bills that accompany the national budget and help us to amend fiscal laws on an incremental basis to enhance our capacity to generate revenue as well as to block leakages.”

“We have seen revenue from government owned enterprise increase by 100 per cent within a 12-month period just by being able to pull everything together, put monitoring mechanisms and being able to track and also putting regulations and laws in the finance bill that caps the expenditure to revenue ratio of these government enterprises to 50 per cent. So, we saw our revenue double and we are seeing the potential revenue from these enterprises again doubling in this current year as we speak.”

Also in a statement, Managing Director of the International Monetary Fund (IMF) Ms. Kristalina Georgieva, at the conclusion of a meeting yesterday with African Ministers of Finance, African central bank governors, and representatives from the United Nations Economic Commission for Africa (UNECA) where they discuss the impact of the crisis in Ukraine states: “Africa is particularly vulnerable to impacts from the Ukraine war through four main channels increased food prices, higher fuel prices, lower tourism revenues, and potentially more difficulty accessing international capital markets.

“This is a critical moment for the international community and policymakers to come together, and I was very encouraged by the strong interest from African policymakers in continuing our dialogue on policy responses. I noted, in particular, significant concerns about the limited domestic policy space to sustainably address the ongoing crises.

“Redoubling efforts to advance reforms that further promote resilience is a priority for many countries. At this difficult moment, the Fund stands ready to help African countries address the repercussions of the war, and to help design and implement reforms through our policy advice, capacity development, and lending. Recent reforms to the Fund’s lending toolkit provide greater flexibility to help meet financing needs,” she stated.


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