The International Monetary Fund has warned Nigeria’s government to take away the implicit fuel and electricity subsidies.
This was disclosed by the Fund in the recently published Article IV Staff Consultation Report of the Board of Governors of the global organization, in Washington.
In the report, the IMF told Nigeria that the subsidies would drain three per cent of the nation’s Gross Domestic Product in 2024 compared to the one per cent recorded in the previous year, according to The Punch.
According to the report, the IMF has lauded the Federal Government for phasing out costly and regressive energy subsidies, essential to creating fiscal space for development spending and strengthening social protection while maintaining debt sustainability.
However, the IMF stressed 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.”
Furthermore, the body acknowledged that electricity prices had tripled for high-use premium customers on Band A feeders, 15 perc ent of the 12 million customers who consume 40 per cent of the electricity.
IMF reported that “The tariff adjustment will help reduce expenditure on subsidies by 0.1 per cent of Gross Domestic Product, while continuing to provide relief to the poor, particularly in rural areas.”
The IMF said, “Once the safety net has been scaled up and inflation subsides, the government should tackle implicit fuel and electricity subsidies.”
It, however, warned “With pump prices and tariffs below cost-recovery, implicit subsidy costs could increase to 3 per cent of GDP in 2024 from 1 per cent in 2023. These subsidies are costly and poorly targeted, with higher income groups benefiting more than the vulnerable.”
The IMF reiterated 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.”
It estimated that the implicit fuel subsidy could gulp as high as N8.4tn in 2024 from N1.85tn in 2023, N4.4tn in 2022, N1.86tn in 2021 and N89bn in 2020.
The report stated that the electricity subsidy expended on customers under Band B, C, D, and E was estimated to hit N540bn by the end of 2024.
The claims that the Federal Government paid fuel subsidies through backdoors have been repeatedly disproved by the Nigerian National Petroleum Corporation and the Minister of State for Petroleum, Heineken Lokpobiri.
Recall, that President Bola Tinubu during his inaugural speech on May 29, 2023 announced the removal of fuel subsidies.
