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Monday, May 20, 2024

IMF urges Nigeria to end implicit fuel, electricity subsidies to boost fiscal space

International Monetary Fund stresses the need for subsidy removal as implicit costs escalate, impacting GDP and social protection schemes

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In a recent report, the International Monetary Fund (IMF) issued a stern warning to the Nigerian government, urging the removal of implicit subsidies on fuel and electricity. The IMF highlighted the substantial economic burden these subsidies impose, projecting their cost to reach three percent of the nation’s Gross Domestic Product (GDP) in 2024.

While acknowledging President Bola Tinubu’s administration’s removal of fuel subsidies in 2023, the IMF raised concerns about the adequacy of compensatory measures for the poor and the reintroduction of implicit subsidies due to capped pump prices.

The IMF’s scrutiny extends to electricity tariffs, noting a threefold increase for premium consumers. Despite protests from Nigerians calling for a reversal of the tariff hike, the IMF emphasized the necessity of tariff adjustments to reduce subsidy expenditure while providing relief to vulnerable populations.

Highlighting the substantial fiscal implications, the IMF projected that implicit fuel subsidies could soar to N8.4 trillion in 2024, with electricity subsidies reaching N540 billion by the year’s end.

The IMF’s call to end electricity subsidies coincides with mounting protests and threats of labor strikes, underscoring the urgency for policy action. As the debate intensifies, the IMF reiterates the importance of removing costly and untargeted subsidies to foster economic stability and social welfare.

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