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| IMF Advises FG to Eliminate Fuel and Electricity Subsidies Post-Inflation Control |
"After the expansion of the safety net and the reduction of inflation, the government is expected to address the implicit subsidies on fuel and electricity," the report states.
The International Monetary Fund (IMF) has recommended that the Federal Government withdraw subsidies on petrol and electricity once the current inflationary pressures have been mitigated.
In its 'Nigeria: 2024 Article IV Consultation' report, the IMF indicated that a social transfer program aimed at reducing the nation's inflation has commenced.
The inflation rate in Nigeria surged to 33.20 percent in March 2024, an increase from February's 31.70 percent, as citizens continue to face economic challenges.
The Bretton Woods Institution noted that approximately 15 million households, or 60 million Nigerians, stand to gain from the federal government's improved social intervention program, which was established with assistance from the World Bank.
"The authorities have endorsed a new social transfer system developed with World Bank assistance, and initial disbursements have begun."
"In light of governance issues, the authorities have automated and digitized the system to establish a solid framework that provides quick and precise support to at-risk households—around 15 million households or 60 million Nigerians are likely to benefit from the program.
"After the expansion of the safety net and the reduction of inflation, the government is expected to address the implicit subsidies on fuel and electricity," the report states.
The IMF criticized the subsidies as costly and ineffectively allocated, with wealthier demographics reaping greater benefits than those in need.
The IMF also projected that, with fuel pump prices and electricity tariffs remaining below the cost-recovery level, the expense of subsidies could rise to three percent of the Gross Domestic Product (GDP) in 2024, up from one percent of GDP in 2023.
It's important to note that this comes as Nigerians are still grappling with the effects of the fuel subsidy removal since President Bola Tinubu's inauguration in May 2023.
Furthermore, the Nigerian Electricity Regulatory Commission (NERC) approved an increase in electricity tariffs for Band A customers to N225 per kilowatt-hour (kWh) from N66 in April, aiming to decrease the electricity subsidy.
However, a month later, the electricity distribution companies (DisCos) announced a reduction in the tariff for Band A customers to N206.80 per kWh.
Amid these developments, the IMF has expressed criticism of the fuel and electricity subsidies, emphasizing that they contribute to the budget deficit. The federal government has forecasted a budget deficit of N9 trillion for the current year.
Beyond the subsidies, the IMF attributes the growing budget deficit to lower oil and gas revenue forecasts, the ongoing suspension of excise measures included in the medium-term expenditure framework (MTEF), and increased interest costs.
"The staff accounts for under-execution of capital expenditure based on historical patterns and estimates a Federal Government of Nigeria (FGN) deficit of 4.5 percent of GDP, compared to the 2024 budget target of 3.4 percent of GDP," the IMF stated.
"For the consolidated government, this suggests a projected deficit of 4.7 percent of GDP in 2024—compared to 4.8 percent of GDP in 2023 measured from the financing side—which is justified considering the significant social needs and a realistic rate of revenue collection.
"Looking ahead, the staff anticipates a consolidation in the non-oil primary deficit. As interest costs rise, government debt is expected to stabilize towards the end of the forecast period."
