The International Monetary Fund (IMF) recently cautioned the Nigerian government to eliminate what it termed implicit subsidies on fuel and electricity.
In a recent report by the IMF, it advised Nigeria that these subsidies would consume three percent of the nation’s Gross Domestic Product (GDP) in 2024, compared to one percent in the previous year.
The report commended the Federal Government for taking steps to phase out “costly and regressive energy subsidies,” highlighting the importance of creating fiscal space for development spending and strengthening social protection while maintaining debt sustainability.
President Bola Tinubu’s administration removed fuel subsidies during his inauguration on May 29, 2023.
However, the IMF noted concerns that adequate compensatory measures for the poor were not promptly implemented and were paused over corruption concerns.
This led to the reintroduction of implicit subsidies by the end of 2023 to help Nigerians cope with high inflation and exchange rate depreciation.
The IMF 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 who account for 40 percent of electricity usage.
As Nigerians demand the reversal of the Band A tariff, the IMF suggested that adjusting the tariff would reduce subsidy expenditures by 0.1 percent of GDP while continuing to provide relief to the poor, particularly in rural areas.
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The IMF advocated for the removal of implicit fuel and electricity subsidies once the safety net has been expanded and inflation subsides.
It warned that with pump prices and tariffs below cost-recovery, implicit subsidy costs could increase to 3 percent of GDP in 2024.
The IMF projected that the implicit fuel subsidy could reach as high as N8.4 trillion in 2024, with electricity subsidies for customers under Bands B, C, D, and E projected to reach N540 billion by the end of 2024.
Despite repeated denials from the Nigerian National Petroleum Company and the Minister of State for Petroleum (Gas), Heineken Lokpobiri, regarding fuel subsidies, the IMF’s call for the removal of electricity subsidies comes amidst protests from Nigerians.
Organized labor has threatened to stage a protest on Monday if the Minister of Power, Adebayo Adelabu, fails to heed their calls to return the Band A tariff to its previous status.
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