‘Political pressure caused subsidy removal in Jan. 2012’

The immediate past Minister of Finance, Dr. Ngozi Okonjo-Iweala, has said the removal of petrol subsidy in January 2012 was as a result of political pressure.

Okonjo-Iweala, who is the Commissioner, Global Commission on the Economy and Climate, said in an article in the Financial Times that the policy of subsidy removal was planned to be introduced later than that time.

While making a case for fuel subsidy removal, she said the government’s support for fossil fuel subsidies would amount to almost $650bn this year globally and “the cost of these subsidies far outweighs the benefits and burdens the middle classes”.

 

She said about 30 countries, including Nigeria, had already made efforts to phase out fossil fuel subsidies, adding that in spite of the difficulties, it was well worth the effort.

Okonjo-Iweala said, “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.”

She noted that even phasing out half of the subsidies was a substantial achievement, adding that some $13bn worth of petrol subsidies, including many fraudulent claims, had burdened the national budget.

Stating that the government was able to redirect some of those funds, the former minister said, “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 health care centres.

“Using lessons learnt from Nigeria and other countries, we can put together a set of best practices to follow. These include co-ordinated communication, implementation and redistribution efforts. Reform should also create a broad sense of political ownership, especially in fiscally decentralised countries.”

Okonjo-Iweala, who noted that one of the most common concerns about removing subsidies was that it would hurt the poor, added, “But in reality, the subsidies benefit high-income populations and industry much more than low-income households.”