By Ken Afor
Amid the current economic crisis in Africa’s largest economy, Nigeria, the International Monetary Fund (IMF) has advised the federal government to completely phase out fuel and electricity subsidies to reduce some of the financial burdens incurred.
The IMF gave the advise in its recently released Post Financing Assessment (PFA) report on Nigeria.
The Bretton Woods Institution, while commending the administration of President Bola Ahmed Tinubu on its bold economic reforms, reiterated the need to completely phase out fuel and electricity subsidies as they do not directly affect those in dire need of government support. This has come as shock and disbelief to many.
Given the current food crisis, the institution recommends short-term social transfers to the most vulnerable in the country.
In acknowledging the gradual progress the Central Bank of Nigeria (CBN) is making in unifying the official exchange rates, the IMF noted that it would be a daunting task for the government to achieve its ongoing domestic revenue mobilization agenda due to the challenging business climate urging for a thorough assessment of unintended consequences in some of its reforms. .
The IMF stated, “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 MPR until it is positive in real terms
would be an important signal of the direction of monetary policy.
“The authorities are exploring options to strengthen Nigeria’s reserve position, though a careful assessment of unintended consequences is needed in some cases. Settling the CBN’s overdue dollar obligations will help rebuild confidence in the central bank and the naira. Sharing comprehensive information on Nigeria’s reserves position would facilitate a more complete assessment of the external situation.
On the administration’s drive for revenue mobilization and digitalization agenda, the international money lender said the mission would enhance public service delivery as well as safeguard fiscal sustainability.
“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. Fuel and electricity subsidies are costly, do not reach those that most need government support and should be phased out completely,” IMF said.
It would be recalled that the Nigerian Electricity Regulatory Commission (NERC) stated that the government subsidized electricity in the first, second, and third quarters of 2023.
Despite the subsidy, electricity consumers were billed N1.06 trillion in the country during the nine months but operators received only N782.6 billion despite the several blackouts experienced in many parts of Nigeria.
Regarding subsidy payments, details revealed that about N36 billion in subsidy was provided by the government in the first quarter of 2023. The figure doubled to N135.2 billion in the second quarter and surged by N204.6 billion in the third quarter.
