IMF Advises FG To Remove Fuel, Electricity Subsidies

The International Monetary Fund has advised the Federal Government of Nigeria to remove fuel and electricity subsidies. Information Guide Nigeria

According to NIGERIAN TRIBUNE, the IMF in a statement said the removal of “retrogressive” fuel and electricity subsidies should be considered a priority as part of the fiscal policy.

The IMF said, “The headline fiscal deficit is projected to worsen in the near term and remain elevated over the medium term. Despite much higher oil prices, the general government fiscal deficit is projected to widen in 2021 to 6.3 per cent of GDP, reflecting implicit fuel subsidies and higher security spending, and remain at that level in 2022.

“There are significant downside risks to the near-term fiscal outlook from the ongoing pandemic, weak security situation and spending pressures associated with the electoral cycle.”

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While calling on efforts towards revenue mobilization efforts, IMF said, “fiscal deficits are projected to stay elevated above the pre-pandemic levels with public debt increasing to 43 per cent in 2026.

“General government interest payments are expected to remain high as a share of revenues making the fiscal position highly vulnerable to real interest rate shocks and dependent on central bank financing.

“The complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor.

“The mission stressed the need to fully remove fuel subsidies and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act.

“In addition, the implementation of cost-reflective electricity tariffs as of January 2022 should not be delayed.

‘Well-targeted social assistance will be needed to cushion any negative impacts on the poor particularly in light of still elevated inflation.

“Nigeria’s past experiences with fuel subsidy removal, which have all been short-lived and reversed, underscore the importance of building a consensus and improving public trust regarding the protection of the poor and efficient and transparent use of the saved resources.”

According to NIGERIAN TRIBUNE, the IMF also observed that the economy has been recovering from a historic downturn attributing this to “government policy support, rebounding oil prices and international financial aid”, adding that Nigeria exited the recession in 2020Q4, earlier than expected.

“Output rose by 5.4 per cent (y-o-y) in the second quarter, mainly reflecting base effects from transport and trade sectors and continued strong growth in the IT sector.

“However, manufacturing and oil sectors remain weak, reflecting continued foreign exchange shortages, and security and technical challenges.

“Headline inflation rose sharply during the pandemic reaching a peak of 18.2 per cent y-o-y in March 2021 but has since declined helped by the new harvest season and opening of the land borders. Jamb Result

“Reported unemployment rates are yet to come down although COVID-19 monthly surveys show the employment level to be back at its pre-pandemic level”.

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