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Yaoundé - 27 January 2023 -
Energy

Cameroon: govt cuts fuel subsidy by 50%

Cameroon: govt cuts fuel subsidy by 50%
  • Comments   -   Friday, 20 January 2023 17:56

(Business in Cameroon) - For 2023, the Cameroonian government plans to allocate CFA350 billion for fuel subsidy, Cyrille Edou Alo'o, the Budget Director General at the Ministry of Finance, reported. This budget represents half the CFA700 billion allocated the previous year.

According to Cyrille Edou Alo'o, the 2023 budget is based on an oil price of $85.5 per barrel compared to $98.2 in 2022, down 13%. By cutting subsidies by 50%, the government is expected to fill the gap through other mechanisms, but the appreciation of the U.S. dollar against the local currency does not bode well for this approach. One dollar is expected to be worth CFA640 in 2023, compared to CFA620.6 in 2022, an increase of 3% that will in turn increase the cost of the subsidy.

Price hike

According to the 2023 budget law explanatory memorandum, the government plans to partly close this gap thanks to better targeting of the subsidy. Thus, part of the fuel subsidy for car owners who do not use public transport will be reduced and the cost of road tax stickers will be increased. The cost has been increased from 35% to 100%, depending on the engine horsepower.

However, unless the government has other measures to improve targeting, this should be largely insufficient. Because, all the measures to increase registration fees and stamp duties are expected to bring in only CFA15 billion in 2023, according to budget revenue forecasts. Based on this scenario, pump prices should increase over the year. As a reminder, in his end-of-year speech, delivered on December 31, 2022, President Paul Biya said: “it is increasingly obvious that our country, like many others in Africa and elsewhere, will not be able to escape indefinitely from a readjustment of the prices of petroleum products, if we want to preserve our budgetary balances and serenely pursue the implementation of our development policy."

Pressure from the IMF

With this comment, the Head of State aligned with international financial institutions such as the International Monetary Fund (IMF), which sees the subsidy of petroleum products to be holding back public investment. “The impact of higher international oil prices on the budget is mixed as the higher oil revenues are more than offset by substantially higher fuel subsidies (estimated at 2.9 percent of GDP from 0.5 percent in 2021) aimed at maintaining the administered retail fuel prices. The higher subsidy costs are therefore being accommodated by reducing other spending, including spending on investment projects,” IMF said in a June 2022 statement following the completion of the second review of the economic and financial program underway with Cameroon. For several months now, the IMF has been meeting with the authorities, the private sector, and civil society to convince them of the need to reduce fuel subsidies.

As a reminder, the nearly CFA775 billion injected last year by Cameroon in the subsidy of petroleum products, including domestic gas, is triple the estimated cost (CFA250 billion) of rebuilding the country's only refinery (Sonara). This sum also exceeds the CFA720 billion required for the construction of the Nachtigal dam (420 MW), the full commissioning of which will increase by 30% the power capacity of Cameroon.

Brice R. Mbodiam and Aboudi Ottou

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