IMF to Nigerian government: End fuel, electricity subsidies after tackling inflation

For the Nigerian economy to continue to thrive, the International Monetary Fund (IMF) called on the administration of President Bola Ahmed Tinubu to permanently end the fuel and electricity subsidies when the rising inflation has been addressed.

The IMF in a report titled ‘Nigeria: 2024 Article IV Consultation’ pointed out that the social transfer scheme that would curb the country’s inflation has already commenced.

Nigeria has been struggling with a surging inflation rate that escalated to 33.20 percent in March 2024 — up from 31.70 percent in February.

The inflation has sent prices of goods and services to their highest rates across the 36 states including the Federal Capital Territory (FCT).

The IMF said, “The authorities have recently approved an enhanced social transfer mechanism developed with World Bank support, and some initial payments have been made.”

“In response to governance concerns, the authorities automated and digitalized the system to build a robust mechanism that delivers swift and targeted support to vulnerable households—some 15 million households or 60 million Nigerians potentially benefit from the scheme.

“Once the safety net has been scaled up and inflation subsides, the government should tackle implicit fuel and electricity subsidies,” it said.

The IMF, however, stressed that the subsidies are expensive and poorly targeted, with higher-income groups benefiting more than the vulnerable.

“Staff factors in an under-execution of capital expenditure in line with past outcomes and estimates an FGN deficit of 4.5 percent of GDP relative to the 2024 budget target of 3.4 percent of GDP,” IMF said.

“For the consolidated government, this implies a projected deficit of 4.7 percent of GDP in 2024 —compared to 4.8 percent of GDP in 2023 measured from the financing side — which is appropriate given the large social needs and factoring in a realistic pace of revenue mobilization.

“Over the medium-term, staff projects consolidation in the non-oil primary deficit. With rising interest costs, government debt stabilizes towards the end of the projection period.”