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Nigeria should reduce dependency on oil

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By Mercy Kelani

IMF advise full removal of fuel subsidies in Nig as it mostly benefits the rich.

Abebe Aemro Selassie, the Director of African Department at the International Monetary Fund (IMF), commended the Nigerian government for their reform policies. Selassie stressed the significance of reducing dependency on oil and increasing revenue from non-oil sources. He pointed out the low tax revenue to Gross Domestic Product (GDP) ratio in Nigeria and urged for its enhancement to support vital sectors such as education and infrastructure. Furthermore, he praised the efforts made to eliminate fuel subsidies in Nigeria.

Also, he emphasized the importance of fully abolishing fuel subsidies in Nigeria, stating that the majority of the benefits from it go to the wealthy. During the press briefing at the Africa Department in Washington DC for the IMF/World Bank Spring Meetings, Selassie acknowledged the efforts of the Federal Government of Nigeria in the implementation of favourable policies. Recommendations have been given on the best policy mix, with numerous reports also available on the subject.

Dependence on oil as Nigeria’s main source of revenue is excessive.

His primary belief is that Nigeria should prioritize diversifying its economy. Furthermore, the government’s dependence on oil as its main source of revenue is excessive, leaving a lack of focus on non-oil resources. This imbalance extends to the government’s reliance on various resources as well. There is a significant issue in Nigeria, the most populous country in Africa, regarding the low tax revenue to GDP ratio. This ratio currently stands at around eight to nine percent.

This percent is not sufficient to meet the development needs of the country. Increasing this ratio is crucial to ensure the allocation of more resources towards the enhancement of education by building universities and improving infrastructure. Finally, when discussing the monetary exchange rate domain, it is crucial to establish a system that accurately mirrors the balance between supply and demand. This seems to be the path that the government of Nigeria is currently heading in.

Changing the subsidy system is crucial to correcting inequality.

When addressing subsidies within Nigeria, he emphasized that the policy exhibits regressive tendencies, disproportionately favouring the affluent portions of the population at the expense of the less fortunate. He emphasized that changing the subsidy system is crucial to correcting this inequality and shifting funds towards social safety nets for at-risk families. The Director of the IMF pointed out that ultimately, subsidies affect internal resource distribution in Nigeria, meaning that Nigerian citizens are the ones footing the bill for these subsidies.

Furthermore, IMF strongly discouraged the use of broad subsidies because they often end up benefiting wealthier individuals more than those in lower income brackets. This creates a regressive system where the advantages of fuel subsidies disproportionately favour the wealthy over the less affluent. In Nigeria, the wealthy individuals driving luxury cars and living in spacious homes, or those who receive subsidized fuel, are the ones who gain more compared to the less fortunate and disadvantaged members of society. Subsidy reform is crucial because it redistributes resources from the wealthy to the poor, allowing for improvements in conditions for those in need.

Related Article: Directing Fuel Subsidy Savings to Development

It is the most vulnerable members of society who suffer when subsidies benefit the rich instead of those who truly need assistance. By prioritizing subsidy reform, they can ensure a fairer distribution of resources and a more equitable society. The government’s decision to decrease subsidies in response to fluctuating oil prices is commendable. Although there has been some inconsistency in the level of subsidy provided, the choice to eliminate subsidies and allocate resources towards supporting disadvantaged households is a step in the right direction.

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