Nigeria Faces Fiscal Pressure Over Fuel, Electricity Subsidies, IMF Warns
The International Monetary Fund (IMF) has highlighted the importance of Nigeria prioritising the full implementation of its cash transfer program to support vulnerable households before considering reevaluating costly fuel and electricity subsidies. This recommendation comes as part of the IMF’s advice following a recent visit to Nigeria.
During the visit, an IMF team led by Axel Schimmelpfennig engaged in discussions with key officials in Lagos and Abuja from February 12 to February 23, 2024. The team stressed the need for Nigeria to focus on fully implementing its social safety net program, which aims to provide cash transfers to the poor and vulnerable, before making adjustments to fuel and electricity subsidies.
The IMF expressed concerns over the fiscal burdens associated with the current practice of subsidising fuel and electricity, estimating potential costs of up to 3% of Nigeria’s Gross Domestic Product (GDP) in 2024 if current subsidy practices continue.
Despite Nigeria’s economy showing signs of growth, with a GDP growth of 2.8% in the fourth quarter of 2023, the IMF projects a modest improvement to 3.2% in 2024. However, challenges such as high inflation, a weakening naira, and the need for tighter monetary policies are expected to remain significant.
The IMF also commended the decision of Nigeria’s Monetary Policy Committee (MPC) to tighten monetary policy further by increasing the policy rate to 22.75%. This move aims to address inflation, which reached 29.9% year-on-year in January 2024, and alleviate pressure on the naira.
Regarding food security, the IMF acknowledged Nigeria’s efforts to address food insecurity affecting approximately 8% of the population. The approval of a targeted social safety net program, coupled with improvements in revenue collection and oil production, is seen as a positive step towards stabilising the economy.
However, the IMF emphasised the need for Nigeria to address the financial implications of fuel and electricity subsidies. The Fund suggested that before tackling these costly subsidies, the recently approved social safety net program must be fully implemented to protect low-income households effectively.
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