IMF Urges Nigeria to Remove ‘Implicit’ Subsidies on Fuel and Electricity

By Jemimah Wellington, JKNMedia Reporter

THE INTERNATIONAL Monetary Fund (IMF) has issued a pressing advisory to the Nigerian government, stressing the immediate necessity to eliminate what it terms ‘implicit’ subsidies on electricity and fuel.

These subsidies, projected to consume three per cent of the nation’s Gross Domestic Product (GDP) in 2024, up from one per cent in the previous year, have drawn concern from the global financial institution.

Commending the Federal Government’s efforts to phase out energy subsidies, the IMF, in a recent report, labeled such subsidies as costly and regressive. It emphasized that removing them is vital for freeing up fiscal space for development spending, strengthening social protection, and ensuring debt sustainability.

Since assuming office on May 29, 2023, President Bola Tinubu has taken significant strides by eliminating fuel subsidies.

However, the IMF noted that compensatory measures intended to support the economically disadvantaged were insufficiently scaled up and subsequently halted due to corruption concerns.

The report revealed that by the end of 2023, the government reintroduced implicit subsidies by capping fuel prices below cost to assist Nigerians grappling with high inflation and currency depreciation.

Moreover, the IMF’s report highlighted a notable increase in electricity prices for premium consumers on Band A feeders, constituting 15 per cent of the 12 million customers but accounting for 40 per cent of total electricity usage.

Despite public outcry and calls for the reversal of the electricity tariff, the IMF argued that tariff adjustment is necessary to reduce government expenditure on subsidies by 0.1 per cent of GDP.

It emphasized the continued need for support to vulnerable sectors, particularly in rural areas.

The IMF advocated for eliminating these implicit subsidies once a robust safety net is established and inflation levels stabilize, asserting that “costly and untargeted fuel and electricity subsidies should be removed while retaining a lifeline tariff for essential consumption.”

According to IMF projections, implicit fuel subsidy expenses could soar to as much as N8.4 trillion in 2024, a sharp increase from N1.85 trillion in 2023.

Additionally, the subsidy for electricity for customers under Bands B, C, D, and E could reach N540 billion by the end of 2024.

The IMF’s call for electricity subsidy removal coincides with significant public dissent, with organized labor threatening protests if the Minister of Power, Adebayo Adelabu, does not revert the Band A tariff to its former rate by Monday.

Both the Nigerian National Petroleum Company and the Minister of State for Petroleum (Gas), Heineken Lokpobiri, have denied allegations that the FG is clandestinely continuing fuel subsidy payments.

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