Salone News

The fuel subsidy debate

19 July 2018 at 02:55 | 1978 views

Commentary

By Rodney Michael, Freetown, Sierra Leone

It is understandable why many are so disappointed and frustrated by the Government’s decision to lift the fuel subsidy.

Of course, it is going to make life a bit harder and that is an indisputable truth.

But the truth, the whole truth and nothing but the truth is Sierra Leone and this Government had no choice....it just had to happen and irrespective of who won the elections, fuel subsidy would have had to be lifted...whether it was APC, NGC, C4C or as is the case SLPP....it was a harsh reality...Sierra Leone like so many other countries in Africa, had to remove subsidy on fuel allowing for the 33% increment.

I am endeavouring to explain with basic examples why subsidy, which we all viewed as Pro Poor policy, was actually more of an anti-poor policy...yes it was and is...and getting rid of fuel subsidy will only be best for the poor people of Sierra Leone in the long run.

Please before you rush to judgement read the justification below.

First of all, the previous government under the leadership of President Koroma had negotiated an IMF AGREEMENT to the value of about 200 million dollars.

Part of the agreement was to remove subsidy on fuel and the sum of $ 50 million dollars was allocated to the Koroma Government immediately.

However, when reading the 2017 budget, the Minister of Finance did not provide for the removal of the subsidy, a breach of the agreement with IMF which led to an IMF led donor blackout for the KOROMA Government and the people of Sierra Leone, earlier this year, well just before elections.

BBC and Africa Confidential, after seeing a leaked US EMBASSY document, made the news international and exposed the details.

It was therefore impossible for any government to function effectively without these donor funding, especially their budgetary support which constitutes about 2/3rds of our national budget.

Bio’s Government was left with no room to negotiate, and all efforts by the Minister of Finance, JJ SAFFA’s team to lobby IMF AND DONORS to remove that condition failed.

Sierra Leone needs donor budgetary support for now. It cannot at this time with a 3-billion-dollar debt survive or function without it.

There is no alternative but to lift the subsidy, negotiated and agreed to by the previous government.

It is actually making good the commitment and contractual obligation of the Koroma Government, and in exchange Sierra Leone will receive the donor budgetary support and the balance from the funding agreement with IMF, about $ 174 million dollars.

Now to other justification why IMF is right to demand the subsidy be removed. It is in one term "abused" and a lot of us are in one way or the other guilty.

What fuel subsidy implies is that for every litre of fuel, government lifts certain charges on imported fuel and subsidising the said charges.

This is best described as loss of revenue with the sola aim of reducing the cost of transportation which naturally sounds good music to the ears of the poor.

A litre actually is subsidised by about Le 2000 by government. In other words, a strain on the revenue generation and the budget.

The idea of subsidising fuel is for the pump price to be reduced so as to enable the cost of transportation to be cheaper for the masses.

But the reality is such schemes are uncontrollable and impossible to monitor and end up being abused at an incredible loss to government, estimated at 500 billion Leones annually. A fraction of this is benefitting the poor whilst most of this is to the benefit of the middle and upper class.

Pump priced fuel has been used in recent years and abused to supply business houses and residence utilising generators.

Charity they say begins at home and I will for starters use my own case as an example, if not for any other reason but to convince all of you reading this piece of how much it will now cost me that fuel is no longer subsidised, yes I will be a major loser now but yet as a patriot, I now realise it is best for Sierra Leone.

I spend at an average 66 litres of fuel a day for my office and residence in Bo. Strictly since generator use for commercial and residential purposes should not be subsidised, I was actually inadvertently cheating government from consolidated fund…well not cheating per se but directly benefitting from the government subsidy. And there are thousands like me out there.

When translated to monetary terms, Government was actually subsidising my profit-making business and my luxury domestic life style...which is of no benefit to the poor people of this country 66 litres x Le 2 000 x 365 days = Le 48 180 000/00 (forty-eight million one hundred and eight thousand Leones) annually...or Le 4 015 000 a month, which is 8 times the minimum wage for government employees.

The above has not taken into consideration the benefit I get from my 2 vehicles, a Landcruiser on diesel and an Acura on petrol.

They both use about 300 litres a month which also implies I benefit from subsidy 300 litres x Le 2 000 = Le 600 000 a month or Le 7 200 000/00 a year.

Now, imagine a relatively medium scale businessman with a moderate luxurious premise benefitting hugely from government subsidy on fuel...about Le 55 million Leones a year.

And think about the tens of thousands like me...middle class who are not poor and should not benefit on any government pro poor policies and what they benefit from such subsidies.

Ok let us take it a notch...think about the major business houses...those who have massive fuel demands.... like Mobile Companies, Banks, and other commercial institutions.

Think about how much they save on subsidised fuel and how much government loses...in fact the poor people of this country...with low earning capacity...the grade 1 to 6 employees of government or the low earning employees of private businesses and domestic workers who pay taxes and from which taxes fuel is subsidised.

In actuality the Poor of this country are subsidising the middle and rich class and the commercial houses whenever Government applies a subsidy policy on fuel.

And in case one wants to argue that there should be better monitoring policies...well the plain truth is we are not yet able to monitor these kind of supplies...we do not have an efficient infrastructure and it will take time to establish a reliable one.

In conclusion, while cancellation of fuel subsidy will bring some considerable hardship on the poor, it will actually in the long run translate to a genuine pro poor action and benefit the majority of Sierra Leoneans far more than subsidy does.

The savings from unsubsidised fuel could be used for other basic services like education, health, water, sanitary, electricity, and so many developmental projects.

In addition, government has already increased salaries for all grade 1 to 6 workers by 10%, that is a minimum of Le 600 000 annually assuming minimum wage is Le 500 000 for all as is by law. This increment is in consideration and in sympathy of the hardship unsubsidised fuel will impose on the poor people in the interim but should be applied right across board and inclusive of private workers as well.

It will also be so pro poor if government is to consider an increment of the minimum wage from Le 500 000 to about Le 800 000 to help combat the challenges caused by the deteriorating Leone against international currencies, and the price increases of commodities.

The Bio Government has inherited a battered economy, and this we must also appreciate, and why some extremely difficult decisions have been and continue to be taken! As a Nation we must accept this and hope innovative policies to help ease the burden are implemented

Sierra Leone must win!

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