Dr Kalu Idika Kalu, former Minister of Finance has warned that addressing Nigeria’s subsidy issues by merely removing it will still bring Nigerians back to the same issues, including price differentials. The former Minister disclosed this in an interview with Channels Television on Sunday evening. Kalu a 2-time minister (1985-1986 and 1993-1994) is speaking on the background of the Federal Government’s decision to remove fuel subsidy by the second quarter of 2022.

What Dr. Kalu is saying

Dr Kalu said that subsidy is a positive instrument when it’s a deliberate way of buying time to allow the system to grow. “If you have the funds, you can cushion the impact on your producers by giving subsidy and that goes from farmers to manufacturers to all sorts of things. But you also have to weigh it against the cost of putting subsidy,” he said.

He stated that subsidy could be something used for a phase, and not an all-time thing. He said it could be phased because of the objective which is to encourage production, to improve resource uses and balance of resource allocation, and so on. “You can’t remove subsidy without addressing all the macro-economic determinants of domestic prices of petroleum, government control or other prices, including inadequate production, frictions in import flow or supply chains.”

“You can remove it, but if you are still doing the same things that will affect your relative prices, FX interest costs and other price indications, you have to face this issue about price differentials that forces people to want to sell fuel across the border,” he said. He urged that the FG has to do more than remove subsidy, urging the need to address underlying factors that determine the extent, as well as the depth of the subsidies.

“You have to do more than just remove subsidy. You have to address the underlining factors that determine the extent as well as the depth of the quantum of the subsidy,” he added,

What you should know

Nairametrics reported in October that the Federal Government plans to discontinue the payment of petrol subsidy by the second half of 2022. Minister of Finance, Budget and National Planning, Zainab Ahmed, stated at the 27th National Economic Summit, on Monday, October 25, that the federal government has made provision for petrol subsidy till the end of the year. Ahmed stated that revenue that would be saved from subsidy removal will be used to service millions of households via the Conditional Cash Transfer programme.


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