Yaoundé - 15 August 2022 -

Cameroon: IMF does not support the decision to increase oil subsidies

Cameroon: IMF does not support the decision to increase oil subsidies
  • Comments   -   Thursday, 30 June 2022 17:33

(Business in Cameroon) - The International Monetary Fund, in the official statement that concludes a recent mission in Cameroon, expressed its stance on the government’s decision to increase oil subsidies. The institution said the higher subsidy costs impede investment projects.

“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% of GDP from 0.5% 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,” the statement reads.

IMF thus believes that by increasing the amount dedicated to "grants and contributions" from CFA265.4 billion to CFA625.4 billion, of which 480 billion are intended to subsidize the consumption of white petroleum products (an increase of 300% compared to the initial budget), the State of Cameroon is depriving itself of funding that could have been directed to public investment. Indeed, this amount corresponds to almost twice the amount that was used to build the 38 km highway between Kribi and Lolabé, or the Lom Pangar dam, considered the country's most strategic energy infrastructure.

Subsidies for the wealthy

“The high cost of fuel subsidies would be difficult to sustain under current international oil price projections,” the institution said suggesting that the government should gradually phase out those subsidies. However, this will lead to an increase in pump prices.

This IMF suggestion will not have a direct impact on the outcome of the second review of the extended credit facility and extended fund facility for Cameroon. However, it could become a condition for the positive conclusion of the third review. Let’s recall that the Fund is expected to approve $73.6 million (a little over CFA46 billion) in budget support for Cameroon in July 2022 following the second review.

As a reminder, the IMF has always been against energy subsidies in Africa, because, it said, they considerably unbalance state budgets and are counterproductive for the economy, insofar as "these subsidies benefit the rich”.

In a report titled “Energy Subsidy Reform in Sub-Saharan Africa: Experiences and Lessons,” the IMF revealed that “household survey evidence from nine African countries (Arze del Granado, Coady, and Gillingham, 2012) suggests that poorer households consume directly a much smaller share of the total fuel and electricity supplied. Households in the richest quintile spent on per capita terms close to 20 times more on fuel and electricity than households in the poorest quintile (kerosene is the only exception, with broadly evenly distributed consumption across households). Besides relatively higher incomes, better access to energy resources (particularly electricity in urban areas) contributes to the higher fuel consumption of richer households.”

Brice R. Mbodiam

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