"It Makes More Sense To Remove Subsidies And Redirect
Cash Into Investments That Go Directly To Those Who Need It Most"
By Ngozi Okonjo-Iweala
Globally, government support for
fossil-fuel subsidies will amount to almost $650bn this year. The cost of these
subsidies far outweighs the benefits and burdens the middle classes. Reforming
the system can make energy infrastructure more efficient, shore up public
finances and allow more targeted spending on public services.
The idea is not a new one. In 2009, the G20 countries and the
Asia-Pacific Economic Cooperation forum committed themselves to cutting
inefficient subsidies but progress has been limited. But in the context of the
decline in oil prices, which benefits consumers, we have a golden opportunity
to deliver reform.
About 30 countries, including my own, Nigeria , have already made efforts
to phase out fossil-fuel subsidies. In spite of the difficulties, it is well
worth the effort.
In 2012 in Nigeria we reformed petrol subsidies.
Conscious that the public might be concerned, we ran an information campaign to
explain how the savings would be used to help everyone. Political pressure,
however, led to the policy being introduced earlier than planned and, as a result, the changes came as a shock to many. This led to
protests and the reform had to be partially rolled back.
Despite this, we were right to act. Even phasing out half of
the subsidies was a substantial achievement. Some $13bn worth of petrol
subsidies, including many
fraudulent claims, had burdened the national budget, and we were
able to redirect some of those funds. Within a year, our programme to reinvest
the savings meant we could finish the renovation of a north-south national
railway, as well as introduce improved maternal and childcare services in 500
primary healthcare centres.
Using lessons learnt from Nigeria and other countries we can
put together a set of best practices to follow. These include co-coordinated
communication, implementation and redistribution efforts. Reform should also
create a broad sense of political ownership, especially in fiscally
decentralised countries.
One of the most common concerns about removing subsidies is that
it will hurt the poor. But in reality the subsidies benefit high-income
populations and industry much more than low-income households.
The International
Monetary Fund has estimated that
more than 40 per cent of fuel price subsidies in developing countries accrue to
the richest 20 per cent of households, while 7 per cent of the benefits go to
the poorest 20 per cent.
It makes more sense to remove subsidies and redirect cash into
investments that go directly to those who need it most. That was the aim of Nigeria ’s
programme and it is being tried elsewhere. In Germany
and Poland ,
for example, coal subsidy reforms were supported by cash assistance for workers
affected by mine closures.
RELATED POST
No comments:
Post a Comment