World Bank, IMF Express Worry As Global Subsidies Hit $2tr

[TGD]

 • Want Nigeria To End Fuel Subsidy

 

BRETTON Woods institutions, Saturday, raised alarm at the growth of global subsidies, saying the figure has reached a $2 trillion.

They called for a redirection because subsidies in most countries, including Nigeria, have been hijacked by the rich.

This was the submission of Managing Director of the International Monetary Fund (IMF), Ms. Christine Largarde, on the sidelines of this year's Spring Meeting of IMF/the World Bank in Washington.

According to Largarde, subsidies in most countries are being misdirected to benefit the rich instead the poor, which is a major cause of escalating poverty.

She said: "At the last count, subsidy around the world was $2 trillion and it goes to those who don't need it, the rich. This is why we need to look at the concept of subsidy again."

Speaking on Nigeria at another meeting of chief economists of the World Bank, Mr. Shanta Deverajan, Chief Economist for the African Region, declared that the Nigeria's petroleum subsidy programme, where the Federal Government spends over N1 trillion yearly, was not sustainable. He advised the country to scrap it and focus on a more inclusive welfare programme while calling for cash transfer programme to take care of the vulnerable in the society.

He said: "the problem with that subsidy is that lion share goes to the non-poor, as much as 60 per cent goes to the rich, where as 40 per cent goes to the rest of Nigerians; so, it is not an effective way of helping the poor and you can replace that with the cash transfer that is targeted at the poor, and save a lot of money. That is what countries such as Brazil did. I am not saying that here should be outright removal of subsidy, but here is more efficient way of helping the poor than a subsidy whose 60 per cent goes to the non-poor.

"Brazil has a conditional cash transfer programme that has had tremendous impact on poverty, which is declining rapidly and inequality has fallen in that country. They had the highest inequality in the world, but it now comes down substantially and they spent 0.75 percent of GDP.

"The growth rate in Nigeria has been in the oil sector while the poor are mostly in agriculture and the non- formal economy; so there is a disconnect and this is not just in Nigeria, but in a lot of countries. I think the central problem in Nigeria is how to translate oil revenue to benefit the poor. Nigeria earns something like $30 billion in oil revenue, but still has a poverty rate of about 60 per cent, which is unacceptable in my view.

"But underlying all that, I think is the problem of governance because to make infrastructure work, you need to build trust in the public that if you raise electricity prices for instance that they will get better electricity, you have to make the public trust you that the money got from subsidy will actually be used wisely, or may be even transfer it to the poor in terms of cash transfers. So, we have a long way to go in getting the Nigerian economy booming and impacting on the poor."

He also identified high interest rate in Nigeria as another reason for slow growth in the country and advised both the fiscal and monetary authorities to work together to address the challenge so as to attract investments.



The Guardian