Government maintains subsidies despite IMF concerns | The new times

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Government subsidies on certain products or services are not permanent and aim to control price increases to reduce costs for consumers, the finance and economic planning minister said.

Uzziel Ndajijimana was answering a question during the post-budget press conference held at the ministry’s headquarters in Kigali on June 30.

The question was based on the June 23 International Monetary Fund (IMF) recommendation that Rwandan authorities should focus on increasing the coverage and benefits of existing social protection programs in a targeted manner and phase out subsidies. to fuels.

These subsidies were introduced to protect citizens from the adverse effects of Covid-19 and the fallout from the Russian-Ukrainian war.

The subsidies cover fuel, fertilizer and public transport.

The recommendation to phase our grants came after the IMF Executive Board completed the sixth review of the Policy Coordination Instrument for Rwanda on June 22.

The IMF said growing inflationary pressures, exacerbated by rising commodity prices, are compounding the policy challenges of balancing economic recovery with maintaining price stability.

Unless there are changes in the global supply of commodities, Minister Ndagijimana said inflation – or the overall increase in the prices of goods and services – is forecast at 9.5% in 2022 due to the current Russia-Ukraine which has increased global commodity prices.

“Inflation is a global problem, even in developed countries,” he said.

In 2021, the inflation rate remained low in the first nine months with an average of 0.7%, largely driven by low food prices thanks to a good harvest.

The Minister indicated that there are external factors over which the country has no control, including imported inflation or rising prices of imported goods, indicating that subsidies are one of the actions to deal with them.

Not a permanent measure

“Subsidies are not a permanent measure; this is a temporary measure to respond to the price shocks we are experiencing today. Failure to do so results in more problems for everyone or for consumers, or for the economy as a whole. So it’s a good thing to do,” he said, pointing out that rising fuel prices, for example, drive up the costs of other goods and services.

“Of course, they will be phased out as the trend in international prices reverses, and we hope that will happen soon. But as long as we have an increase in international prices from this level that we have today, the subsidies are absolutely necessary,” he said.

Fuel subsidies

Since May 2021, the government has been subsidizing fuel prices at the pump to avoid a situation where they would be too high and have a significant negative impact on Rwandans.

In two months – June and July – the government subsidizes fuel costs with more than 14 billion Rwandan francs.

Thanks to this financial support, the price of a liter of diesel is purchased at Frw 1,503 instead of Frw 1,719, while that of gasoline is at Frw 1,460 instead of Frw 1,676.

This brings total government fuel subsidies to around Rwf 44 billion since May last year as it provided support of around Rwf 30 billion till early June this year, according to information from the Ministry of Infrastructure.

Fertilizer and seed subsidies

To support the Crop Intensification Program (CIP), the government has allocated funds amounting to 36 billion Rwandan francs to help farmers obtain relatively affordable fertilizers and seeds in the financial year 2022- 2023. This allocation is against the required Rwf 56.8 billion, implying a gap of Rwf 20.8 billion. However, the government has said the gap could be closed during the budget review.

Due to the unusual increase in fertilizer prices on the international market, and in an effort to continue to facilitate farmers’ access to these inputs at relatively affordable prices, the government has increased its contribution to fertilizer cost subsidies. chemicals in January of this year.

An increase in subsidies is reflected in at least the three most common fertilizers used by farmers in the country, namely diammonium phosphate (DAP), NPK (nitrogen, phosphorus and potassium) 17:17:17 and urea.

For example, for NPK, the government provides Rwf 475 per kilogram of financial support to the farmer after the increase in the price of fertilizers.

Thus, a farmer pays only Rwf 882 per kilogram of NPK instead of Rwf 1,357.

To support the Crop Intensification Program (CIP), the government has allocated funds amounting to 36 billion Rwandan francs to help farmers obtain relatively affordable fertilizers and seeds in the financial year 2022- 2023. This allocation is against the required Rwf 56.8 billion, implying a gap of Rwf 25.8 billion. However, the government has said the gap could be closed during the budget review.

The activities targeted under this project include the distribution of more than 3,430 tons of quality seeds, 50,179 tons of fertilizer in the context of the rising costs of this agricultural input, as well as 37,736 tons of lime with a government subsidy, according to data from the Ministry of Agriculture and Animal Resources. .

“If we don’t give fertilizer subsidies, prices would be too high for farmers, which would reduce fertilizer use and ultimately agricultural production, but we still want to increase it,” he said. said Ndagijimana.

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