By Sabiu Abdullahi
The International Monetary Fund (IMF) has advised the Nigerian government to discontinue its “hidden subsidies” on fuel and electricity, citing the significant burden it places on the country’s economy.
According to a recent report by the IMF, subsidies are expected to consume 3% of Nigeria’s Gross Domestic Product (GDP) in 2024, a notable increase from 1% in the previous year.
The report praised the Federal Government for its decision to gradually eliminate expensive and inequitable energy subsidies, which the IMF believes is crucial for freeing up financial resources for development initiatives, enhancing social safety nets, and ensuring sustainable debt levels.
The IMF stated, “Once the safety net has been scaled up and inflation subsides, the government should tackle implicit fuel and electricity subsidies.”
The report noted that “with pump prices and tariffs below cost-recovery, implicit subsidy costs could increase to 3% of GDP in 2024 from 1% in 2023. These subsidies are costly and poorly targeted, with higher-income groups benefiting more than the vulnerable.”
The body recommended 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.”
The advice from the IMF comes as the Nigerian government continues to grapple with economic challenges, including a significant budget deficit and rising inflation.
The elimination of subsidies is expected to free up resources for more targeted and effective social welfare programmes, but it may also lead to increased energy costs for consumers.