Nigeria plans on a 8 5.8 billion cash handout to replace fuel subsidies. Oil and gas news

The government will provide 5,000 naira (डलर 12.20) a month to 40 million people starting July.

By Bloomberg

Nigeria plans to transfer cash to the poor, which could cost the government 2.4 trillion naira ($ 5.8 billion) a year to replace fuel subsidies.

The government will provide 5,000 Naira monthly to 40 million people starting from July after the end of fuel subsidy. The new petroleum law forces the government to allow market forces to determine the price of petrol. The cash transfers will take place over a period of six to 12 months, Finance Minister Zainab Ahmed said on Thursday.

Nigerians will then vote to elect at least 30 state governors and a successor to President Muhammadu Buhari.

The fuel support cuts will support the ruling party’s long-term revenue-generating policy goals and allow the party to increase support for poor Nigerians ahead of the 2023 election, Eurasia Group said in a note to customers on Thursday. “The potential voters who will benefit from the transport subsidy are more likely to vote for Buhari’s party, and they will benefit less from the current petrol subsidy,” the Eurasia group said.

Cash aid programs have helped the poor, from Togo to India, but in a country with few bank accounts, the process could lead to corruption, said Cheta Nwanje, a major partner at SBM Intelligence.

The government will use biometric verification numbers, national identity cards and bank account numbers to ensure payments go to the right recipients, Ahmed said last week. It is working with the World Bank to design and fund the plan.

Nigeria wants to scrap fuel subsidies because the nation’s budget can no longer bear the financial burden. According to the International Monetary Fund, the subsidy will reduce the budget deficit to 6.3 percent of economic output this year.

Currently subsidies cost the government 250 billion naira a month, Ahmed said. The IMF has recommended that West African nations implement “well-targeted social assistance schemes” to eliminate subsidies and reduce the negative impact of subsidy cuts on the poor.

Africa’s most populous country hosts one of the world’s largest numbers of people living in extreme poverty, dropping to about $ 1.90 a day. Monthly grants will be a significant increase in income for such individuals.

Still, the 2.4 trillion naira annual cost could be a huge burden and President Buhari’s successor could be the one to decide whether to extend it or end it.

The West African nation does not have a track record of making politically difficult decisions. It has been fighting for decades to end fuel subsidies, which are expected to cost 3 trillion naira in the next 12 months if oil prices remain at current prices. Also, electricity subsidy has not been terminated.

These payments are unsustainable because they are just another consumption subsidy that is in no way productive, Nwanje said.

“I would like such grants to go to small businesses so that they can expand and keep a dent in our high unemployment rate.”

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