LAGOS, Nigeria (VOICE OF NAIJA)-The International Monetary Fund (IMF) has advised the Nigerian government to eliminate what it termed implicit fuel and electricity subsidies.
In a recent report released by the IMF, these subsidies are projected to consume three percent of the nation’s Gross Domestic Product (GDP) in 2024, a significant increase from the one percent recorded in the previous year.
The report however, commended the Federal Government for its actions, including the phase-out of “costly and regressive energy subsidies.”
It emphasised the importance of this move in creating fiscal space for development spending, enhancing social protection, and ensuring debt sustainability.
President Bola Tinubu’s administration initiated the removal of 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.”
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The organisation also recognized that the price of electricity had tripled for high-use premium consumers on Band A feeders, constituting 15 percent of the 12 million customers responsible for 40 percent of electricity usage.
Amidst Nigerian demands for the Band A tariff to revert from N206.80 per kilowatt-hour to N68, the IMF maintained 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”.
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The projected implicit fuel subsidy could escalate significantly, reaching N8.4 trillion in 2024 compared to N1.85 trillion in 2023, N4.4 trillion in 2022, N1.86 trillion in 2021, and N89 billion in 2020.
Additionally, the electricity subsidy allocated to customers under Bands B, C, D, and E was forecasted to reach N540 billion by the end of 2024.
The IMF’s insistence on eliminating electricity subsidies comes at a time when Nigerians are protesting, urging the Minister of Power, Adebayo Adelabu, to restore the Band A tariff to its previous level.