Sierra Leone government removal of fuel subsidy – why it had to happen

Rodney Michael: Sierra Leone Telegraph: 19 July 2018:

It is understandable why many are disappointed and frustrated by the government’s decision to lift fuel subsidy. Of course, it is going to make life a bit harder, and that is an indisputable fact.

But the truth, the whole truth and nothing but the truth is that 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 is a harsh reality, but Sierra Leone like so many other countries in Africa, had to remove subsidy on fuel.

I will endeavour 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  on the Koroma government and the people of Sierra Leone, earlier this year, well just before the elections.

The BBC and Africa Confidential, after seeing a leaked US Embassy document, reported the news globally, exposing the details.

It was therefore impossible for any government in Sierra Leone to function effectively without  donor funding, especially their budgetary support which constitutes about two-thirds of the country’s 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 the IMF and donors to remove the ‘condition’ failed.

Sierra Leone needs donor budgetary support for now. It cannot at this time with a three billion dollars debt survive or function without it. There is no alternative but to lift the subsidy that was 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 as to why the 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 sole aim of reducing the cost of transportation which naturally sounds like good music to the ears of the poor.

A litre of fuel is actually subsidised by about Le 2,000 by the government. In other words, a strain on the revenue generation and government 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 that 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 benefiting the poor, whilst most is to the benefit of the middle and upper class in society.

Pump priced fuel has been used in recent years and abused to supply businesses 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 now 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 purchase an average of 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 the consolidated fund. Well not cheating per se, but directly benefiting 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 lifestyle, 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 fact has not taken into consideration the benefit I get from my two vehicles – a Landcruiser on diesel and an Acura on petrol.

They both use about 300 litres a month, which also implies that I benefit from the following subsidy: 300 litres x Le 2, 000 = Le 600, 000 a month or Le 7, 200, 000 a year.

Now, imagine a relatively medium scale businessman with a moderate luxurious premises, 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 from any government pro poor policies.

Ok let us take it up a notch. Think about the major businesses – those who have massive fuel demands, such as 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 fuel is subsidised.

In actuality, the Poor of this country are subsidising the middle and upper class and businesses, 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 that 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, sanitation, 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, in sympathy, in lieu of the hardship that unsubsidised fuel will impose on the poor people in the interim. But it should be applied right across board and inclusive of private workers as well.

This policy will be even more pro poor if the government is to consider an increase in 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 goods and services.

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