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IMF acknowledges Nigeria’s fuel subsidy removal, prescribes mitigation measures

IMF acknowledged the importance of fuel subsidy removal as a policy that could foster future growth

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The International Monetary Fund (IMF) commended the Nigerian government on Tuesday for the removal of the fuel subsidy while stressing the need for measures to shield vulnerable citizens from the resultant high cost of living.

Speaking at the World Bank/IMF Annual Meetings in Marrakesh, Morocco, Era Dabla-Norris, Assistant Director, Fiscal Affairs Department, IMF, acknowledged the importance of fuel subsidy removal as a policy that could foster future growth. However, she emphasized the necessity of accompanying the removal with smart policies to alleviate the impact on the most vulnerable.

Dabla-Norris outlined two key aspects: protecting vulnerable populations from the increased cost of living and implementing macroeconomic policies to durably reduce inflation. She suggested that targeted programs be ramped up to shield the most vulnerable groups and highlighted the importance of revenue collection efficiency, considering Nigeria’s low revenue-to-GDP ratio compared to other emerging markets.

The IMF official applauded the fuel subsidy reform, stating that it freed up budgetary space for other types of spending. She acknowledged the challenging nature of the policy and emphasized the need to prioritize assistance for the most vulnerable, as fuel subsidies globally tend to benefit middle or higher-income groups.

Regarding Nigeria’s plans for major tax reforms, Dabla-Norris indicated that some of the suggested policies would take time to achieve results. She outlined steps, including expanding tax bases, reducing exemptions in value-added tax, reducing tax expenditures, and enhancing the quality of tax institutions, as measures that could be taken over the medium term to mobilize revenues progressively.

On the issue of Nigeria’s high debt burden, the IMF official advised the country to focus on durable revenue collection, rationalizing expenditures, and implementing structural reforms to stimulate growth.

Regarding the possibility of total debt cancellation for Nigeria and other African economies, the IMF African Department Director, Abebe Selassie, dismissed the idea, noting that 50 percent of total debts in Sub-Saharan African countries are domestic. He mentioned that debt cancellation, if considered, would have to be done on a country-by-country basis.

Selassie provided an overview of the region, stating that private investment and consumption are expected to lift growth in many parts of Sub-Saharan Africa by 2024. He noted that inflation is gradually dropping in the region.

Meanwhile, at the opening press conference, World Bank Group President Ajay Banga stated that interest rates are expected to remain higher for an extended period, complicating global investments. The World Bank aims to increase its incremental lending capacity by $150 billion over the next decade, with contributions from donors and various initiatives.

In summary, the IMF praised Nigeria’s fuel subsidy removal, emphasizing the need for complementary measures to protect vulnerable citizens and suggesting macroeconomic policies to address inflation.

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