IMF Urges FG to Discontinue Electricity and Hidden Fuel Subsidies.
The International Monetary Fund (IMF) has advised the Nigerian government lead by President Bola Tinubu to discontinue its fuel and electricity subsidies, which it describes as “hidden” and “inefficient”.
In a recent report, the IMF notes that these subsidies are expected to consume 3% of the country’s Gross Domestic Product (GDP) in 2024, a significant increase from 1% in the previous year.
The IMF commends the Federal Government for its decision to gradually eliminate expensive and inequitable energy subsidies, which it believes is crucial for freeing up financial resources for development initiatives, enhancing social safety nets, and ensuring sustainable debt levels.
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According to the report, the IMF states that “once the safety net has been scaled up and inflation subsides, the government should tackle implicit fuel and electricity subsidies”.
It notes that “with pump prices and tariffs below cost-recovery, implicit subsidy costs could increase to 3% of GDP in 2024 from 1% in 2023. These subsidies are costly and poorly targeted, with higher income groups benefiting more than the vulnerable”.
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The IMF recommends that “as inflation subsides and support for the vulnerable is ramped up, costly and untargeted fuel and electricity subsidies should be removed, while, e.g., retaining a lifeline tariff”.
This move, according to the IMF, will help Nigeria to allocate its resources more efficiently and effectively, and ensure a more sustainable economic future.
