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Analysis – African countries mired in turmoil and debt crisis cut fuel subsidies

By Libby George

LONDON (Reuters) – Abdoulaye Diallo paid more than 27% He filled up more gas in his “thiak-thiak” motorcycle taxi in Keur Mbaye Fall, a suburb of Dakar, the Senegalese capital, than before the government started removing fuel subsidies in January.

Diallo, 27, already dealing with punitive inflation and deadly politics Riot, but his biggest problem is his inability to pass on the cost of filling his debts. Tank has been raised to 3, 82 CFA ($5.25), last year since 2, 000 CFA .

“Clients … don’t realize how difficult it is,” Diallo said. “That’s what we need to protest.”

Senegal, like Nigeria and Angola, is removing costly fossil fuel subsidies – a move once considered politically unthinkable, but It has been necessary because of heavy debt loads, soaring borrowing costs and high oil prices.

According to statistics, global fossil fuel consumption subsidy spending doubled to a record $1 trillion last year as the Ukraine war led to a surge in oil prices. International Energy Agency (IEA).

Fuel and electricity support cost 4% of GDP in Senegal last year, while Nigeria spent $0000 Billion dollars capping gas prices. Angola spent 1.9 trillion kwanzas (US$2.3 billion) on 2022, more than 49% of the IMF’s estimated spending on social programs.

“The cost is too high for us to keep paying,” said Stanley Achonu, Nigerian director of the ONE Campaign, which advocates for sustainable debt and ending poverty.

Pure fiscal necessity

According to the OECD, almost every country on earth has some fossil fuel subsidies and development (OECD). After Russia invaded Ukraine, costs ballooned when the government stepped in to protect citizens from high energy bills.

Ghulam Balim, chief economist at Standard Bank in Johannesburg, said African countries “removed these policies out of absolute necessity” “due to the combination of rising borrowing costs and already huge debts”. Impact.

The borrowing boom during the low interest rate period of the past decade has caused debt-to-GDP ratios in many African countries to double or triple; Debt-to-GDP ratio across Africa has roughly doubled to % High costs are now effectively shutting many out of international bond markets. China, a lifeline lender to some African countries, has also tightened fiscal policy.

Post-COVID- 19 Economic growth takes a hit, war in Ukraine pushes up fuel and food prices, African countries don’t have ” Buckets of powder” to fund subsidies and jump-start economic recovery.

Bahrain said “credit spreads in African countries have risen sharply,” indicating higher borrowing costs. “They are about the emerging market average three times. “

Nearly half of the countries in sub-Saharan Africa are in debt distress or at high risk of debt distress, according to the World Bank.

Feeding the rich

Timing is tough for someone like Diallo. Inflation in Senegal hits record high 0000. It was 1% last year, though it has since slowed down, while in Nigeria it remains at 19% above, the highest level in decades. Angola’s double-digit inflation is likely to remain high due to the weak kwanza.

In Angola, gasoline prices almost double to 300 Kwanza ($0.2025) per liter last month, sparking deadly protests while Nigeria abandons last-ditch effort to cut subsidies 822 after serious strikes.

But David Amaglobeli, Deputy Director of the IMF’s Fiscal Affairs Department, said hard times should not stop subsidy removal.

“The money could be used or could be used more effectively uses,” he said, adding that wealthier people benefit disproportionately from price caps, while central banks print money to pay for them, driving up inflation.

Widespread smuggling, which he said has “almost disappeared” since Nigeria removed the subsidy, also drains countries of cash that could be used to boost economic growth for all citizens.

Zambia is experiencing Subsidies were cut as part of an IMF bailout after agonizing pain. 2020 Default. Subsidy spending from 2020 from 2.4% of GDP to 0.4% of 2020, thereby increasing the proportion of funding in education, health and health. Social protection. Amagrobelli said, Supporting vulnerable households “more or less immediately” is crucial.

Gregoire Garsous, senior policy analyst at the OECD, agrees.

“That’s why we tend to think that (subsidies) should be phased out and replaced with policies for those who might be harmed,” he said.

Nigeria will get $764 World Bank has provided $1 million to help support its poor but Ajonu says its register of vulnerable citizens is only about 10 ten thousand people, compared with 82 millions of poor people.

The World Bank estimates that removal of subsidies and removal of exchange controls will result in some savings for Nigeria 10 Trillion Naira ($27.25 billion) from 2020 to 2022.

Angola says it will implement in phases the removal of subsidies through 2025, with savings going towards cash transfers to poor citizens and support for agriculture, fishing and public transport.

Senegal will also slowly remove prices through 2025 support, cash transfers to the poorest and continue targeted subsidies for public transport. But those measures ruled out city taxis like Diallo motorcycles.

“Changing the price is going to be tough for us,” Diallo said. “The authorities should be held accountable.”

($1=764.9400 Kwanzaa)

($1=300.00000 naira)



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