(Bloomberg) — African nations should consider cutting fuel subsidies and oil exporters must curb spending as a slump in crude prices takes its toll on government revenue, International Monetary Fund Manging Director Christine Lagarde said.
An almost 60 percent drop in oil prices since June has forced policy makers in Nigeria, Africa’s biggest crude producer, to devalue the currency, raise interest rates to a record and consider shaving the 2015 budget by 8 percent.
As President Goodluck Jonathan seeks re-election on Feb. 14, he’s avoided further cutting fuel subsidies that cost as much as $7 billion a year, after an attempt to do so in 2012 sparked protests. Subsidizing countries “should think about reducing and phasing out the oil subsidies, taking advantage of the oil price and using public finance more wisely than in undifferentiated energy subsidies,” Lagarde said in an interview on Wednesday in the Rwandan capital, Kigali.
“For the exporting countries that are clearly taking a hit on both accounts of reduced trade revenues and reduced public revenues, they have to be very cautious with public spending, and reduce what can be reduced and use whatever is left over as buffers.”
Fuel subsidies in Nigeria cost as much as $7 billion a year, while in Angola, Africa’s second-biggest oil producer, the government is seeking to lower subsidies to 1 percent of gross domestic product from 4.5 percent.
The IMF last week lowered its 2015 economic-growth outlook for sub-Saharan Africa to 4.9 percent from a previous estimate of 5.8 percent in October, citing “shocks” to oil-producing economies from falling prices.
The growth forecast for Nigeria, the continent’s largest economy, was lowered to 4.8 percent from 7.3 percent. Nigeria should re-examine its fiscal and monetary policies immediately after elections to see if further action is needed, after the government took steps to rein in spending and adjusted interest rates in November, said Lagarde.
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