The International Monetary Fund (IMF) has underscored the importance for the Nigerian government to prioritize the full implementation of its cash transfer program for vulnerable households before considering reevaluating costly fuel and electricity subsidies.
According to the IMF, the social safety net program, aimed at disbursing cash transfers to the poor and vulnerable, must be fully operational to shield economically vulnerable segments of the population as the government deliberates adjustments to existing fuel and electricity subsidy frameworks.
This recommendation follows concerns expressed by the IMF regarding the fiscal burdens associated with the current practice of subsidizing fuel and electricity. The IMF team, led by Axel Schimmelpfennig, the IMF mission chief for Nigeria, highlighted the potential fiscal costs of up to 3% of Nigeria’s Gross Domestic Product (GDP) in 2024 due to the continued capping of fuel pump prices and electricity tariffs below their recovery costs.
During the visit, part of the 2024 Article IV Consultations, discussions were held with key Nigerian officials in Lagos and Abuja from February 12 to February 23, 2024.
The IMF commended recent improvements in revenue collection and oil production but emphasized the need for enhanced non-oil revenue mobilization. Despite Nigeria’s economy showing signs of growth in the fourth quarter of 2023, with a GDP growth of 2.8%, challenges such as high inflation, a weakening naira, and the need for tighter monetary policies remain significant.
The IMF also praised Nigeria’s efforts to address food insecurity and acknowledged the approval of a targeted social safety net program. However, it stressed the urgency of addressing the financial implications of fuel and electricity subsidies, emphasizing the need for full implementation of the recently approved social safety net program to protect low-income households effectively.
Additionally, the IMF applauded the decision of the Monetary Policy Committee (MPC) to tighten monetary policy further to contain inflation and alleviate pressure on the naira.
While Nigeria has taken steps to revamp its cash transfer program to combat fraud and ensure direct payments, recent suspensions and investigations within the program highlight the need for enhanced accountability and transparency in social safety net initiatives.
The IMF’s recommendations underscore the importance of addressing socio-economic vulnerabilities while ensuring fiscal sustainability and effective governance in Nigeria’s policy framework.
