The Nigerian government has been advised by the International Monetary Fund (IMF) to completely phase out costly fuel and electricity subsidies that are inefficient in reaching the most vulnerable.
“Fuel and electricity subsidies are costly, do not reach those that most need government support and should be phased out completely,” IMF said in a report which was obtained by Africa Today News, New York.
This recommendation comes in a new report titled “IMF Executive Board Concludes Post-Financing Assessment with Nigeria,” published on Friday, February 9.
The IMF commended President Bola Tinubu’s administration for tackling structural issues by removing fuel subsidies and unifying exchange rates.
“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,” the report said.
“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 mobilisation agenda.”
IMF, however, warns of a challenging road ahead, saying that like many other countries, Nigeria faces a difficult external environment and wide-ranging domestic challenges.
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“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.”
The IMF stated that the government’s focus on revenue mobilisation and digitalisation would improve public service delivery and fiscal sustainability, but the anticipated reduction in the overall deficit in 2024 would help contain debt vulnerabilities and eliminate the need for CBN financing.
According to the IMF, Nigeria’s capacity to repay the fund is adequate under the baseline, and the authorities’ policy intentions are well positioned to address the risks of a downside scenario in which difficult trade-offs between urgent humanitarian needs and debt service may arise.
“In such circumstances, aggressive monetary tightening and fiscal adjustment, combined with support from development partners, would be needed to restore macroeconomic stability,” it added.
It also advised the Nigerian government to prioritise settling the Central Bank of Nigeria’s (CBN) overdue dollar obligations.
This move, according to the IMF, is crucial for rebuilding confidence in the central bank and the naira, eventually contributing to a more stable financial environment.