Nigeria plans $5.8bn in cash handouts to replace fuel subsidies

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The government will give 5,000 naira ($12.20) to at least 40 million people every month starting July.

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

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The government will give 5,000 naira to at least 40 million people every month, starting in July when the fuel subsidy ends. A new petroleum law forces the government to allow market forces to set gasoline prices. Finance Minister Zainab Ahmed said on Thursday that the cash transfers would take place over a period of six to 12 months.

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

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Eurasia Group said in a note to clients on Thursday that cutting fuel support would support the ruling party’s long-term policy goals of freeing up revenue, while allowing the party to increase support among poor Nigerians ahead of the 2023 elections . “The voters who are most likely to benefit from transport subsidies are more likely to vote for Buhari’s party, and they also benefit least from existing gasoline subsidies”, the Eurasia group said.

Cash assistance programs have helped the poor in India from Togo, but in a country where few have bank accounts, the process can lead to corruption, said Cheta Navanj, a principal partner at SBM Intelligence.

Ahmed said last week that the government would ensure that payments using biometric verification numbers, national identity cards and bank account numbers reach the correct recipients. It is working with the World Bank to design and fund the scheme.

Nigeria wants to end fuel subsidies as the country’s budget can no longer be a financial burden. According to the International Monetary Fund, the subsidies will cover the budget shortfall of up to 6.3% of economic output this year.

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

Africa’s most populous country hosts some of the most poverty-stricken people in the world, or those who leave on about $1.90 a day. Hence the monthly grant would be a significant increase in income for such people.

Still, the cost of 2.4 trillion naira a year could become a huge burden and President Buhari’s successor could be saddened by the decision to increase or eliminate it.

The West African nation does not have a good record of making politically difficult decisions. It has been battling for decades to end fuel subsidies, which are expected to cost 3 trillion naira over the next 12 months if oil prices remain at current prices. Furthermore, it has been unable to eliminate electricity subsidies.

These payments are not sustainable because they are just another consumption subsidy that is not productive in any way, Navanz said.

“I would love grants like this for small businesses so they can expand and make a dent in our high unemployment rate.”

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