The International Monetary Fund (IMF) has cautioned the Nigerian government to discontinue what it terms 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 preceding year.
The IMF report commended the Federal Government for several initiatives, including the phasing out of “costly and regressive energy subsidies,” stating that this move was crucial for creating fiscal leeway for developmental expenditures and reinforcing social protection while maintaining debt sustainability.
The administration of President Bola Tinubu abolished fuel subsidies during his inauguration on May 29, 2023.
However, the IMF observed that “adequate compensatory measures for the poor were not promptly scaled up and later halted due to corruption concerns. Capping pump prices below cost reintroduced implicit subsidies by end-2023 to assist Nigerians in coping with high inflation and exchange rate depreciation.”
The organization also noted that the electricity tariff 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 clamor for the reversal of the Band A tariff from N206.80 per kilowatt-hour to N68, the IMF suggested that “the tariff adjustment would help reduce expenditure on subsidies by 0.1 percent of Gross Domestic Product while still providing relief to the poor, especially in rural areas.”
The IMF advocated that “once the safety net has been expanded and inflation subsides, the government should address implicit fuel and electricity subsidies.”
It cautioned, “With pump prices and tariffs below cost-recovery, implicit subsidy costs could escalate to 3 percent of GDP in 2024 from 1 percent in 2023. These subsidies are expensive and poorly targeted, benefiting higher income groups more than the vulnerable.”
The IMF reiterated that “as inflation diminishes and support for the vulnerable increases, costly and indiscriminate fuel and electricity subsidies should be eliminated, while retaining a lifeline tariff.”
It projected that the implicit fuel subsidy could amount to as much as N8.4tn in 2024, up from N1.85tn in 2023, N4.4tn in 2022, N1.86tn in 2021, and N89bn in 2020.
The electricity subsidy for customers under Band B, C, D, and E was projected to reach N540bn by the end of 2024.
Meanwhile, the IMF’s call for the elimination of electricity subsidies coincides with protests from Nigerians urging the Minister of Power, Adebayo Adelabu, to revert the Band A tariff to its previous state.
Organized labor has threatened to stage protests on Monday if Adelabu fails to heed their demands.
