Reforming Energy Subsidies is Critical for Realizing Africa’s Growth Potential

A recent study by the IMF estimated that at a global level, energy subsidies amounted to a mindboggling US$ 1.9 trillion. Subsidies come in different forms. In advanced economies, they result mainly from underpricing of energy relative to its true cost to society from pollution and climate change. In many oil producing economies, they are simply the opportunity cost of selling energy products below international market prices. In Sub-Saharan Africa, both types of subsidies occur. But more importantly, the widespread practice of subsidizing fuel and electricity prices has led to underinvestment in the energy sector that seriously threatens Africa’s economic growth prospects.With many low-income countries in Africa facing tight budget constraints, energy subsidies divert resources away from many more productive and deserving spending programs.

Opinion 4 MIN