IMF Urges Nigeria To Remove ‘Implicit’ Fuel, Electricity Subsidies

The International Monetary Fund (IMF) warned the Nigerian government to stop "implicit" fuel and electricity subsidies, highlighting that it may use up 3% of the country's Gross Domestic Product (GDP) this year compared to the last.

According to a recently published report, the IMF praised the federal government for phasing out "costly and regressive energy subsidies," noting that it was essential for creating fiscal space for development projects, improving social protection and maintaining debt sustainability.

However, the IMF pointed out that "adequate compensatory measures for the poor were not scaled up promptly and subsequently paused over corruption concerns. Capping pump prices below cost reintroduced implicit subsidies by end-2023 to help Nigerians cope with high inflation and exchange rate depreciation," Punch reported.

The association also acknowledged that the electricity has tripled for high-consuming premium customers on Band A feeders, adding that these customers were 15% of the total 12 million customers who use 40% of the electricity.

As citizens are asking for the reversal of the Band A tariff from N206.80 per kilowatt-hour to N68, the IMF noted that the "tariff adjustment will help reduce expenditure on subsidies by 0.1 percent of Gross Domestic Product, while continuing to provide relief to the poor, particularly in rural areas."

"Once the safety net has been scaled up and inflation subsides, the government should tackle implicit fuel and electricity subsidies," IMF said.

The IMF warned the Nigerian government that if the pump prices and tariffs were lower than the recovery cost, then hidden subsidy expenses can be raised to 3% this year, which is 1% more compared to 2023.

IMF announced last month that Nigeria's GDP might increase by 3.3% this year, compared to 2.9% last year due to better performance in the country's oil industry, improved security and a better farming sector for this growth.

The announcement was made during a press conference on the world economic outlook addressed by Pierre-Olivier Gourinchas in Washington D.C.

President Bola Ahmed Tinubu took steps to strengthen Nigeria's economic governance by establishing the Presidential Economic Coordination Council and the Economic Management Team Emergency Taskforce in March.