The International Monetary Fund (IMF) has called on the federal government of Nigeria to eliminate petrol and electricity subsidies entirely, as part of its recommendations for restoring macroeconomic stability in the country, as detailed in its ‘Post Financing Assessment (PFA)’ report.
Currently, Nigeria’s power sector faces liquidity challenges due to government subsidies on electricity, preventing cost-reflective tariffs. The government spent N204.59 billion on electricity subsidies in Q3 2023, with plans for an additional N1.6 trillion in 2024. Meanwhile, the removal of petrol subsidies, initiated in May 2023, has exacerbated living conditions, leading to a downward spiral in disposable income amidst inflation.
While there have been discussions on the partial reintroduction of petrol subsidies, the IMF emphasized the necessity of their total removal. Despite recent measures such as releasing cereals from grain reserves and subsidizing fertilizer for farmers, the IMF argues that fuel and electricity subsidies are costly and often fail to reach the most vulnerable segments of the population.
The IMF commended recent policy reforms by Nigeria, including fuel subsidy removal and exchange rate unification. It acknowledged the challenges faced by the country, including limited fiscal space and scarce external financing. The institution emphasized the importance of revenue mobilization, digitalization, and reduction of overall deficit to safeguard fiscal sustainability.
In addressing the ongoing cost-of-living crisis, the IMF recommended temporary and targeted social transfers to the most vulnerable. It stressed the need to phase out fuel and electricity subsidies completely, citing their inefficiency and high cost.
The IMF’s assessment underscores the challenges faced by Nigeria and highlights the importance of decisive policy actions to restore macroeconomic stability and foster inclusive growth.
