My Opinion: Removal of Fuel Subsidy should not be politicized
By Alhaji M.B. Jalloh, Information Attaché, Saudi Arabia and the Gulf States
Oil-dependent economies in the Gulf States came under pressure from the International Monetary Fund (IMF) to reduce or remove fuel subsidies since 2014.
Last year, the IMF warned Saudi Arabia – the world’s largest exporter of crude oil that failure to remove fuel subsidy and implement reforms will eat up the country’s fiscal reserves in just five years.
Since the price of crude oil dropped so low, Saudi Arabia has been facing a growing budget deficit, prompting the rich oil kingdom to make sharp cuts in its budget, levy new taxes and reduce government subsidies for water, electrical power and even gasoline.
Recently, the Saudi government came up with a series of measures to reduce spending, including a five-year programme to cut subsidies on electricity and fuel.
In Saudi, where I have lived and worked for the past few years, subsidies are a highly sensitive issue, where residents have grown accustomed to low utility and fuel costs.
In my recent visit to the United Arab Emirates (UAE), the third-biggest OPEC producer, I learned from Sierra Leone’s Ambassador, based in Abu Dhabi, H.E Siray Alpha Timbo, that the government cut subsidies on fuel nationally this year, and on water and electricity in the capital, Abu Dhabi – a move that affected all foreign Missions based in that capital.
“The resolution is in line with the strategic vision of the UAE government in diversifying sources of income, strengthening the economy and increasing its competitiveness in addition to building a strong economy that is not dependent on government subsidy, said Suhail Al Mazroui, UAE’s Minister of Energy at this year’s World Economic Forum in Davos, Switzerland.
This step, he said, will put the UAE on par with countries that follow sound economic methodologies. “It is also anticipated to improve the UAE’s competitiveness while positioning the nation on international indices.” He also stressed that for any government to keep supporting subsidies is a drain on the economy and the resources of that nation.
In 2015, The IMF was quoted by the Financial Times in London to have said that petroleum subsidies in the UAE “amount to $7bn a year and are part of a package of energy subsidies that total $29bn, or 6.6 per cent of gross domestic product, and also include support for natural gas and electricity.”
Recently, economists estimate that the removal of subsidies in the second-biggest Arab economy after the Kingdom of Saudi Arabia have saved them billions of Emirati Dirhams.
In neighbouring Kuwait where Sierra Leone is fully represented by Ambassador Ibrahim Bakarr Kamra, the government announced a series of fuel related subsidy reforms early this year, including an 83 per cent increase in higher-quality ultra-premium petrol prices. Lower octane fuels increased by 42 per cent with effect from 1st September this year, Kuwaiti dailies recently published.
They further reported that: “The subsidy cuts will lower current expenditures and bolster government finances dented by the downturn in global oil prices. It is also hoped that the increased prices at the pump will help to reduce the culture of wasteful overconsumption.”
On the other hand, the IMF has also been urging the oil –rich Kuwait to restrain spending on subsidies to make its finances more sustainable in the long term. Neighbouring Bahrain’s cabinet also recently approved cuts to diesel and kerosene subsidies – these moves, according to economists, are necessary steps in the economic recovery of these Gulf States struggling to rein in budget deficits and ease pressure on government coffers ravaged by the decline in oil prices.
Back in Sierra Leone, there were many tongues wagging at the weekend when the pump price of fuel was increased from Le 3,750 to Le 6,000, a difference of Le 2,250. The increase in the pump price comes following the pronouncement by government that it has reached the decision to remove fuel subsidy and use the money to meet other priority needs.
According to Sierra Leone’s Minister of Information and Communications, Mr. Mohamed Bangura, government reached the decision to remove fuel subsidy after the IMF advised that it was losing whopping sums of money to subsidize the pump price of fuel. But the pronouncement of the decision to remove fuel subsidy sparked a lot of debate across the country, given that Sierra Leone had the cheapest fuel price in the four Mano River Union (MRU) States. Some had argued that the removal of fuel subsidy would have a domino effect on the prices of other basic commodities with increase in transport fares.
Others also argued that government should sustain fuel subsidy to avoid price hikes despite the IMF had advised that government was losing a huge sum of money on the pump price of fuel for its citizenry.
But being mindful of the fact that Sierra Leone has a very gullible public and the decision to remove fuel subsidy might play into the hands of unscrupulous compatriots with ulterior sinister motives, the Minister of Information and Communications and his Ministry officials were at work even before the removal of fuel subsidy came into effect at the weekend.
Mohamed Bangura and entourage embarked on a nationwide sensitization campaign on the removal of fuel subsidy and how the money would be expended on key priority areas like school-feeding programme, continue subsidizing school and college fees, among others. In other words, the removal of fuel subsidies will help in the diversification of the economy in other key priority areas that will help in uplifting the lives of our people.
The objective of the sensitization campaign, according to the Information Minister, was to prepare the minds of Sierra Leoneans before the fuel subsidy would be removed. In spite of the hue and cry that followed the removal of fuel subsidy, it is better we understand that with the two shocks of Ebola outbreak that reversed the country’s economic gains and the slump in the world market price of iron ore, government would not continue subsidizing fuel at a reported expenditure of Le 89 billion monthly, especially when there are key priority areas that should be given immediate attention.
Besides, at a time when the government has curtailed the expenditure of Ministries, Departments and Agencies (MDAs) in order to ameliorate the economic slowdown, others argued that, it would be very unwise for government to continue subsidizing the pump price of fuel when it needs money to address other priority areas.
Despite the fact that Sierra Leoneans have been benefiting immensely from fuel subsidy that kept the pump price of fuel constantly low over the last eight to nine years, unpatriotic businessmen and women took advantage of the situation to smuggle fuel into neighbouring Guinea to make more money because of the high cost of pump price of fuel in that country.
According to report, personnel of the Sierra Leone Police (SLP) recently clamped down on fuel smugglers in Kambia and Koinadugu districts which share borders with Guinea. But with the removal of fuel subsidy, it will help discourage smugglers from smuggling fuel into Guinea since the pump price of fuel in both countries could probably be the same price. It may even save more revenue since government would now spend less on security operations along the borders for smugglers.
So if the rich oil producing Gulf States could remove fuel subsidies for the slump in global oil price, what about Sierra Leone that had two shocks – the Ebola outbreak and the slump in the price of iron ore – that devastated our economy that was ranked among the fastest growing economies in the world?
Although the removal of fuel subsidy will directly affect transport fares, I think the government has behaved rationally in line with the austerity measures it is implementing to address the economic challenges in the country. It won’t be easy to overcome, but as patriotic Sierra Leoneans who care for the development of the country, it is imperative that we fully cooperate with the government to restore the economy to its pre-Ebola status of being one of the fastest growing economies in the world.
If we fully cooperate with the expenditure rationalization measures which are expected to end in the first-six months of 2017, just as we fully supported the Ebola fight with resilience, government will certainly address our economic challenges and our economy will be finally up and running.
But take it or you leave it, Sierra Leone’s economy is not as bad as many people think; not even as dire as that of Venezuela in South America or Greece in Europe when a few years back had to introduce harsh austerity measures in exchange for bailout loans by the European Union (EU).