May 30, 2024

IMF Director for Africa says fuel subsidies tend to benefit the wealthy more than the poor and can hinder investments

Selassie IMF
Minister of Finance of the Democratic Republic of the Congo Nicolas Kazadi talks with Abebe Aemro Selassie, IMF Director of the African Department, during a Governor Talk event on Democratic Republic of the Congo, during the 2023 Spring Meetings of the World Bank Group and International Monetary Fund in Washington on April 12, 2023. IMF Photo/Allison Shelley

IMF Director for Africa, Abebe Selassie, has weighed in on fuel subsidies and debt restructuring in African countries during a press conference in Washington DC. Responding to a question from a Nigerian journalist, Selassie stated that the IMF does not take a position on whether or not to subsidize fuel, as it is a political decision for governments to make. However, he noted that such subsidies tend to benefit the wealthy more than the poor and that they can hinder investments in infrastructure, health and education.

On debt restructuring, Selassie stated that debt sustainability is dependent on several factors and not just debt-to-GDP ratio. He added that while Kenya is not expected to do debt restructuring, the future trajectory of Nigeria’s economy is dependent on a host of factors, including reforms, effective resource utilization and the oil price trajectory. Selassie urged the Nigerian government to focus on policies that will help bring the country’s debt under a sustainable trajectory.

Regarding inflation in Africa, Selassie noted that although inflation in some African countries is mainly imported, raising interest rates is still a standard monetary policy response that can help address inflation. He stated that inflation is caused by various factors such as domestic demand pressure or monetary policy being loose in the recent past.

Selassie also provided an update on Ghana’s IMF program, stating that the government has taken significant steps towards reducing macroeconomic imbalances and that the IMF is comfortable with the progress made. However, Selassie noted that the challenges faced by Ghana require a multi-year process of reforms, including revenue mobilization, to bring the fiscal deficit to the required level. He called on creditors to provide the financing assurances needed for the IMF to present the program to the board as soon as possible.

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