IMF to FG: Remove Implicit Fuel, Electricity Subsidies

The International Monetary Fund has warned the Nigerian government to remove what it called implicit fuel and electricity subsidies.

In a report published recently by the IMF, the organisation told Nigeria that the subsidies would guzzle three per cent of the nation’s Gross Domestic Product in 2024 as against one per cent in the year before.

According to the report, the IMF commended the Federal Government for, among other things, phasing out “costly and regressive energy subsidies”, saying this was critical to creating fiscal space for development spending and strengthening social protection while maintaining debt sustainability.

President Bola Tinubu’s administration removed fuel subsidies during his inauguration on May 29, 2023.

IMF noted, however, 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.”

The body also acknowledged that the price of electricity had tripled for high-use premium consumers on Band A feeders, 15 per cent of the 12 million customers who account for 40 per cent of electricity usage.

As Nigerians agitate for the reversal of the Band A tariff from N206.80 per kilowatt-hour to N68, IMF submitted 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 advocated that “once the safety net has been scaled up and inflation subsides, the government should tackle implicit fuel and electricity subsidies”.

It 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 reechoed 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 projected 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 electricity subsidy being paid to customers under Band B, C, D, and E was projected to stand at N540bn by the end of 2024.

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