The International Monetary Fund (IMF) has strongly advised the administration led by Bola Tinubu to take decisive action by completely removing the electricity subsidy in Nigeria. This recommendation stems from the IMF’s published ‘Post Financing Assessment (PFA)’ report, which highlighted concerns regarding the government’s fiscal management.
The IMF report underscores the challenges faced by the federal government, emphasizing the need for immediate action to restore macroeconomic stability. It echoes previous statements by the government itself, indicating that the substantial subsidies on both fuel and electricity have become unsustainable.
According to the IMF, Nigeria’s fiscal burden has become overwhelming, prompting the recommendation for the total removal of subsidies on fuel and electricity. This move, the IMF suggests, could serve as a mechanism to alleviate fiscal strain and promote economic resilience.
The recommendation comes amidst staggering figures revealed by the government, indicating that between January and September 2023, electricity subsidies alone accounted for a significant expenditure of N375.8 billion. During the same period, power consumers reportedly paid a total of N782.6 billion for electricity, underscoring the magnitude of the subsidy issue.
While commending the federal government for the reforms it has implemented thus far, the IMF emphasizes the importance of swift action in removing fuel and electricity subsidies. This aligns with the broader goal of achieving fiscal sustainability and promoting economic growth.
As Nigeria navigates its economic landscape, the recommendation from the IMF serves as a crucial reminder of the challenges that lie ahead. It underscores the importance of bold policy decisions to address fiscal imbalances and pave the way for long-term economic stability.
“The new administration has made a strong start, tackling deep-rooted structural issues in challenging circumstances.
“Immediately, it adopted two policy reforms that its predecessors had shied away from: fuel subsidy removal and the unification of the official exchange rates. Since then, the new CBN team has made price stability its core mandate and demonstrated this resolve by dropping its previous role in development finance.
“On the fiscal side, the authorities are developing an ambitious domestic revenue mobilization agenda. Like many other countries, Nigeria faces a difficult external environment and wide-ranging domestic challenges.
“External financing (market and official) is scarce, and global food prices have surged, reflecting the repercussions of conflict and geo-economic fragmentation. Per capita growth in Nigeria has stalled, poverty and food insecurity are high, exacerbating the cost-of-living crisis.
“Low reserves and very limited fiscal space constrain the authorities’ option space. Against this backdrop, the authorities’ focus on restoring macroeconomic stability and creating conditions for sustained, high and inclusive growth is appropriate.
“The CBN has set out on a welcome path of monetary tightening. The Governor has committed to making price stability the core objective of monetary policy, and the CBN has taken actions to mop up excess liquidity. Continuing to raise the monetary policy rate until it is positive in real terms would be an important signal of the direction of monetary policy.
“The government’s focus on revenue mobilization and digitalization would improve public service delivery and safeguard fiscal sustainability. The envisaged reduction in the overall deficit in 2024 would help contain debt vulnerabilities and eliminate the need for CBN financing.
“Temporary and targeted support to the most vulnerable in the form of social transfers is needed, given the ongoing cost-of-living crisis,” IMF said. “Fuel and electricity subsidies are costly, do not reach those that most need government support, and should be phased out completely.”