The Nigerian government has been advised by the International Monetary Fund to eliminate what it has described as hidden subsidies on fuel and electricity.
In a recent report from the IMF, Nigeria was informed that subsidies are expected to consume three percent of the country’s Gross Domestic Product in 2024, a notable increase from the one percent in the previous year.
As per the report, the IMF praised the Federal Government for its decision to gradually eliminate expensive and inequitable energy subsidies. The IMF stated that this action is crucial for freeing up financial resources for development initiatives, enhancing social safety nets, and ensuring sustainable debt levels.
IMF said, “once the safety net has been scaled up and inflation subsides, the government should tackle implicit fuel and electricity subsidies”.
“With pump prices and tariffs below cost-recovery, implicit subsidy costs could increase to 3 per cent of GDP in 2024 from 1 per cent in 2023. These subsidies are costly and poorly targeted, with higher income groups benefiting more than the vulnerable”.
“as inflation subsides and support for the vulnerable is ramped up, costly and untargeted fuel and electricity subsidies should be removed, while, e.g., retaining a lifeline tariff”.