IMF asks FG to eliminate fuel, electricity subsidies after tackling inflation

By Innocent Raphael

The International Monetary Fund (IMF) has called on the Nigerian government to phase out fuel and electricity subsidies once the country’s surging inflation is under control.

This recommendation came in the wake of Nigeria’s inflation rate hitting 33.20 percent in March 2024, up from 31.70 percent in February, exacerbating the economic challenges faced by its citizens.

In its report titled ‘Nigeria: 2024 Article IV Consultation,’ the IMF highlighted the initiation of a social transfer scheme aimed at alleviating inflation pressures.

The institution estimated that around 15 million households, comprising approximately 60 million Nigerians, could potentially benefit from this enhanced social intervention program developed in collaboration with the World Bank.

The IMF criticized the existing subsidies on fuel and electricity, labeling them as costly and poorly targeted, with affluent groups reaping more benefits than the vulnerable segments of society.

According to the IMF, subsidy costs could escalate to three percent of Nigeria’s gross domestic product (GDP) in 2024, compared to one percent in the previous year.

Nigeria’s budget deficit has also been a cause for concern, with factors such as lower oil and gas revenue projections and increased interest costs contributing to the widening gap.

The IMF projected a deficit of 4.5 percent of GDP for the federal government in 2024, emphasizing the need for realistic revenue mobilization efforts and prudent fiscal management to address the country’s socio-economic challenges in the long term.

“Staff factors in an under-execution of capital expenditure in line with past outcomes and estimates an FGN deficit of 4.5 percent of GDP relative to the 2024 budget target of 3.4 percent of GDP.

“For the consolidated government, this implies a projected deficit of 4.7 percent of GDP in 2024 —compared to 4.8 percent of GDP in 2023 measured from the financing side — which is appropriate given the large social needs and factoring in a realistic pace of revenue mobilization.

“Over the medium-term, staff projects consolidation in the non-oil primary deficit. With rising interest costs, government debt stabilizes towards the end of the projection period,” the report read in part.

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