Former bread and fuel subsidies benefited the wealthy

General subsidies are expensive and benefit the wealthy, the International Monetary Fund (IMF) explains. The resident representative of the institution in Mozambique points out that, under the former subsidies policies, there were people of wealth in the country whose lunches were paid for by the public treasury. The IMF explanation comes more than two years after the government axed its bread and fuel subsidies. According to the International Monetary Fund, these subsidies penalised those who actually needed them.

“General subsidies are not good. They are expensive and benefit wealthier people. Good subsidies are those that really go to the people who need them. It was not the case of either the fuel or the bread [subsidy]. For the flour subsidy, which was eliminated, there were people with high purchasing power whose breakfasts were being funded by public resources,” IMF Resident Representative in Mozambique Ari Aisen explains. The International Monetary Fund also thinks that the current price of fuel, as determined by market rules, has prevented imbalances in supply and brought more strength to the national economy.

 “The risk is that when the supply of fuel from gas stations is threatened, then you enter dangerous territory because the very economic activity that needs that input may be compromised. This risk to economic activity has been eliminated. Today, the problem of all gas stations has been solved through the price of fuels. Today, the pending issues of gas stations and the fuel supply to gas stations has been normalized, and there are no risks,” Aisen says.

Oldemiro Belchior, chief economist of Millennium bim, and another of the speakers at the IMF event in Maputo, argues that subsidy cuts have also benefited the Mozambican state.

“It was a liquidity absorbed in the budgetary accounts without reason, justification or plausible return for its application. Releasing this liquidity and allocating it to more productive and profitable sectors of the economy in fact creates some muscle, some availability for the state, reducing the deficit and even making the company which [previously] benefited [from subsidies] more profitable,” Belchior explained. These propositions were presented in Maputo on Monday, at an event organised by the International Monetary Fund which brought together representatives of the public and private sectors for the IMF’s Sub-Saharan Africa and Mozambique Regional Economic Outlook Presentation.