Agbon: IMF and ‘fuel subsidy’ removal (1)

“The prices of everything will increase, transport, housing, school fees, food, etc. The common man will not be able to survive. We will say no and oppose bad government policies. We will say no and oppose IMF (International Monetary Fund) policies.” – Mrs. Ganiat Fawehinmi,  January 3, 2012.

IS ‘fuel subsidy’ removal an IMF policy? Is Mrs. Ganiat Fawehinmi right? Yes. The present ‘fuel subsidy’ removal is an IMF programme/policy.  The IMF has promoted and supported fuel subsidy removal as government policy in most developing nations. It is part and parcel of the IMF  liberalisation policies and programmes which it imposes on developing nations whenever the opportunity arises. Let me explain.  I will limit this analysis to the last 10 years (2002-2012) for brevity.  I will focus on ‘fuel subsidy’ removal.

“Hide nothing from the masses of our people. Tell no lies. Expose lies whenever they are told. Mask no difficulties, mistakes, failures. Claim no easy victories, ” –  Amilcar Cabral (Unity and Struggle).

IMF working papers and staff position papers are discussion tools for IMF policy formation. They start off with the usual disclaimer that the positions and conclusions in the papers are those of the authors and not of the IMF or its policies. These papers are circulated for discussions within IMF and the World Bank. Sometimes, an IMF executive board workshop or seminar is organised around the ideas expressed in them.  These discussions, meetings, seminars and workshops form the foundations of IMF policies.  So, all we have to do is find the roots of the fuel subsidy campaign in the past IMF working papers and the subsequent implementation of these policies in developing nations with special attention to Nigeria. I will proceed to do just that.



IN 2002, Sanjeev Gupta and a few colleagues in the IMF wrote a working paper on domestic petroleum pricing in oil producing countries.  (Gupta Sanjeev, Benedict Clements, Kevin Fletcher and Gabriela Inchauste, 2002, “Issues in Domestic Petroleum Pricing in Oil Producing Countries”, IMF Working Paper 02/140 , Washington: International Monetary Fund).  Sanjeev Gupta is the Deputy Director in the Fiscal Affairs Department of the IMF.  Prior to this, he was the Assistant Director in the African Department.  Gupta and his colleagues argued that petroleum product prices were heavily regulated. Domestic petroleum product prices were below international prices and this implied foregone revenue. The foregone revenue constitutes a hidden subsidy for its citizen (price-gap methodology). This hidden subsidy benefited high income more than low income groups. The solution was to pass international prices into the domestic market and increase fuel prices. They therefore recommended the imposition of international prices on the domestic petroleum product market and the removal of fuel subsidies. They advised on how to identify political opponents of the fuel subsidy  removal programme, how to do a publicity campaign, how to set up a programme aimed at using the money generated, how to time the subsidy removal, how to make promises of transport buses, education, health, roads and give money to the poor if necessary.  Their paper is the blueprint of the fuel subsidy removal programme that the Federal Government is unleashing on Nigerians today…step by step.  It is all in the IMF working papers.

Let us look at this economic argument closely. We will leave the Federal Government and IMF corridors of power and enter the realms of household economics where ordinary Nigerian farmers, workers, students, market women, housewives, unemployed make rational economic decisions. A Nigerian farmer produces yams for household consumption and sales. This price-gap theory might argue that the yams that the farmer uses to feed his household constitute a hidden subsidy because he has forgone revenue or profit by not selling the yams in the market.  Transparency demands that the hidden subsidy be acknowledged and recorded in the household budget and family members made to pay market prices for their meals.  The theory might further argue that grownups benefit more than children (they eat more).  Hence, the household yam subsidies should be removed and special programmes (run by a honest uncle) should be put in place to help the children. A publicity programme would be needed to explain the yam subsidy removal programme to the mother and all other powerful family opponents.  I do not need to go much further.  Soon, the household members will demand market prices for their labour in the farm (market wages) so they can pay market prices for the yams they eat at home. The wife would demand market wages for the housework. The farmer’s household will collapse. Every rational farmer knows that you first feed the family and it is only the excess that you sell in the market. No amount of Leontief Input-output model, Social Account Matrix (SAM) or Computable General Equilibrium model (CGE) can explain away this basic common sense fact.

Not long after Gupta IMF paper was published, the Fedreal Government decided to increase the price of crude supply to the NNPC from $9.50 per barrel to $18 per barrel. International spot oil prices for Bonny Light Crude were $25.15 per barrel.  NNPC was now invoiced by the Federal Government in US$ for domestic crude allocations (445000 barrels of oil per day) and expected to pay the Naira equivalent to the Federation Accounts using CBN quoted exchange rates.  This is where and how they created a non-existent subsidy.  Since NNPC had no money, it paid the amount received from petroleum product sales minus the subsidy into the Federal Accounts. NNPC sent PPPRA a bill for the subsidy.  NNPC then requested the Ministry of Finance to pay the subsidy amount from the PSF into the Federation Account. The Federal Government was left with this buck passing of a fuel subsidy payment. The IMF was not finished.

In 2003,  Shahabuddin Hossain of the IMF African department wrote an IMF working paper on fuel subsidy in Nigeria (Hossain,  Shahabuddin  Mosherraf , 2003, ”Taxation and Pricing of Petroleum Products in Developing Countries: A framework for Analysis with Application to Nigeria.” IMF Working Paper 03/42 , Washington: International Monetary Fund).  He pushed the same ideas as Gupta with the same arguments. He recommended measures to protect consumption of the poor and politically powerful to stop any strong protest and social unrest after subsidy removal. Using Nigeria as an example, he calculated the fuel subsidy and called for a 115.4% increase in the price of petrol (from N26 to N56 per litre), a 89% increase in the price of diesel and a 37% in the price of Kerosene.  He claimed that these were not specific suggestions for policy reforms in Nigeria.  Maybe it is just coincidental, but a 115.4% increase of N65 /litre is N140.01/litre.

A few months after Hossain’s IMF working paper was published, the Federal Government increased petrol prices from N26 per litre to N55 per litre using some of the arguments in his paper to support the decision.

http://www.ngrguardiannews.com/index.php?option=com_content&view=article&id=73569:agbon-imf-and-fuel-subsidy-removal-1&catid=38:columnists&Itemid=615

Thief Obasanjo really set out to ruin us!

Imagine not only was he implementing conditionalities for IMF loans he paid $16Bn cash to Paris club.

Thief Obasanjo would have to answer to God some day.