The International Monetary Fund (IMF) has issued a stark warning to President Bola Tinubu, urging him to take decisive action to remove implicit fuel and electricity subsidies in Nigeria.
In a recent report, the IMF highlighted the substantial impact of these subsidies, estimating that they would consume three percent of the nation’s Gross Domestic Product (GDP) in 2024, compared to one percent in the previous year.
The IMF commended the Federal Government for its efforts to phase out “costly and regressive energy subsidies,” emphasizing the importance of creating fiscal space for development spending and strengthening social protection while maintaining debt sustainability.
However, the organization expressed concern that compensatory measures for the poor were not effectively implemented and were subsequently paused over corruption concerns.
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With the price of electricity tripling for high-use premium consumers, the IMF emphasized the need for tariff adjustments to reduce expenditure on subsidies while providing relief to the poor, particularly in rural areas.
The organization cautioned that implicit subsidies could increase to three percent of GDP by 2024 if current trends persist, representing a significant burden on the economy.
The IMF reiterated its call for the removal of fuel and electricity subsidies, noting that these subsidies are costly, poorly targeted, and disproportionately benefit higher-income groups. It emphasized the importance of scaling up support for the vulnerable while phasing out untargeted subsidies, ultimately promoting fiscal sustainability and economic resilience.
Despite claims to the contrary, the IMF’s warning underscores the urgent need for Nigeria to address the issue of fuel and electricity subsidies. As protests mount and public pressure grows, the government faces increasing scrutiny over its handling of this critical issue. The IMF’s recommendations serve as a timely reminder of the importance of implementing effective policy measures to ensure the country’s long-term economic stability and prosperity.
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