Former Minister of Finance, Dr. Kalu Idika Kalu, has warned that simply eliminating Nigeria’s subsidies will return Nigerians to the same problems, including price disparities.

This was revealed by the former Minister in an interview with Channels Television on Sunday evening.

Kalu, who served as a minister twice (1985-1986 and 1993-1994), is speaking in light of the Federal Government’s decision to phase out fuel subsidies by the second quarter of 2022.

What Dr. Kalu has to say

Subsidies, according to Dr. Kalu, are a positive tool when they are used to buy time for the system to grow.

“If you have the funds, you can cushion the impact on your producers by providing subsidies, and this applies to farmers, manufacturers, and a variety of other industries.” “However, you must consider the cost of putting in a subsidy,” he added.

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He stated that subsidy could be used for a specific period of time rather than being permanent. He said it could be phased in because the goal is to encourage production, improve resource use, and resource allocation balance, among other things.

“You can’t get rid of subsidies without addressing all of the macroeconomic determinants of domestic petroleum prices, government control, and other prices, such as insufficient production, frictions in import flows, and supply chains.”

“You can remove it,” he said, “but if you continue to do the same things that affect relative prices, FX interest costs, and other price indicators, you’ll have to deal with the issue of price differentials that forces people to sell fuel across the border.”

He argued that the FG must do more than simply remove subsidies, stressing the importance of addressing the underlying factors that determine the extent and depth of subsidies.

“It’s not enough to just eliminate the subsidy. “You must address the underlying factors that determine the extent and depth of the subsidy’s quantum,” he added.

What you need to know

According to Nairametrics, the Federal Government plans to stop paying out petrol subsidies in the second half of 2022.

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Zainab Ahmed, the Minister of Finance, Budget, and National Planning, stated at the 27th National Economic Summit on Monday, October 25, that the federal government has made provisions for petrol subsidies until the end of the year.

According to Ahmed, the money saved from eliminating subsidies will be used to help millions of people through the Conditional Cash Transfer program.

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