The International Monetary Fund (IMF) warns the government of Nigeria regarding the continuation of implicit fuel and electricity subsidies. The IMF’s report underscored the negative impact of subsidies, projecting them to reach three percent of GDP in 2024. This projection represents a substantial rise from the one percent recorded in the previous year. The report warns of the economic repercussions of maintaining these subsidies at such levels.
The IMF acknowledged government actions, emphasizing the necessity of ending costly and regressive energy subsidies. Consequently, this action would create fiscal space for development spending, enhance social protection, and ensure debt sustainability.
President Bola Tinubu’s administration abolished fuel subsidies on May 29, 2023. Yet, the IMF raised concerns about timely compensatory measures for the poor. The IMF noted a resurgence of implicit subsidies through capped pump prices below cost by late 2023. Tinubu’s government ended fuel subsidies but faced criticism from the IMF for lacking sufficient support for the impoverished. The IMF highlighted the need for prompt and adequate measures to mitigate the impact of subsidy adjustments.
The IMF pointed out a notable surge in electricity costs for high-use premium consumers on Band A feeders. This change affects a substantial portion of electricity users, prompting calls for reversing the Band A tariff. Fifteen percent of the 12 million customers, constituting 40 percent of electricity usage, face increased tariffs. Consequently, there is increasing pressure for the reversal of the Band A tariff.
The IMF suggested tariff adjustments to reduce subsidy spending and maintain relief for the poor, particularly in rural regions. The IMF advised the government to strengthen safety nets and address inflation. It also recommended gradually phasing out costly subsidies. While advocating for the removal of fuel and electricity subsidies, the IMF emphasized the importance of retaining lifeline tariffs. These measures aim to provide ongoing support for vulnerable segments of the population during the transition away from subsidies.
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