Mon. Dec 6th, 2021

The government will give 5,000 naira ($ 12.20) to as many as 40 million people every month from July.

By Bloomberg

Nigeria plans to give cash handouts to the poor, which could cost the government 2.4 trillion naira a year ($ 5.8 billion) in an effort to replace fuel.

The government will give 5,000 naira each month to as many as 40 million people, starting in July when fuel subsidies end. A new petroleum law obliges the government to allow market forces to determine petrol prices. The cash transfers will take place over a period of six to 12 months, Finance Minister Zainab Ahmed said on Thursday.

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

Cutting back on fuel aid will support the ruling party’s long-term policy goals to free up revenue, while allowing the party to strengthen support among poor Nigerians ahead of the 2023 polls, Eurasia Group said in a note to customers on Thursday. “The category of voters who will benefit most from the transport allowance are more likely to vote for Buhari’s party, and they also benefit the least from current petrol subsidies,” Eurasia Group said.

Cash support 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 Nwanze, a key partner of SBM Intelligence.

The government will make sure the payments go to the rightful recipients using biometric verification numbers, national identity cards and bank account number, 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 country’s budget can no longer contain the financial burden. According to the International Monetary Fund, the subsidies will increase budget deficits to 6.3% of economic output this year.

The subsidies currently cost the government about 250 billion naira a month, Ahmed said. The IMF has recommended that the West African nation do away with subsidies and implement a “well-targeted social assistance plan” to mitigate the negative impact of subsidy cuts on the poor.

Africa’s most populous country is home to the world’s largest number of people living in extreme poverty, or those leaving around $ 1.90 a day. The monthly allowance will therefore be a significant boost in income for such people.

Yet the cost of 2.4 billion naira a year could become a huge burden and President Buhari’s successor may be saddled with the decision to extend or terminate it.

The West African nation does not have a good record of making politically difficult decisions. It has struggled 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. In addition, it could not terminate electricity subsidies.

These payments are not sustainable because they are merely another consumer subsidy that is in no way productive, Nwanze said.

“I would have preferred such grants to go to small businesses so that they could expand and put a dip in our rather high unemployment rate.”

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