The International Monetary Fund (IMF) has reaffirmed its recommendation for Nigeria to remove fuel subsidies and adjust foreign exchange (FX) rates as crucial steps for achieving macroeconomic stability.
In an email to Premium Times on Wednesday, the IMF reiterated the importance of these policy changes. Abebe Selassie, director of the African department at the IMF, praised the economic reforms introduced by President Bola Tinubu’s administration during a recent press briefing at the IMF/World Bank meetings in Washington, D.C.
Selassie highlighted the need for Nigeria to invest in infrastructure, health, and education, emphasizing that removing the subsidy represents a more efficient use of public funds. He stated that this move could unlock Nigeria’s economic potential, attract investments, and spur growth.
Furthermore, Selassie urged the Nigerian government to utilize the savings from subsidy removal to support vulnerable households facing economic challenges.
However, on October 25, local media reported that the IMF had distanced itself from the decision to eliminate the petrol subsidy. The Nigeria Labour Congress (NLC) criticized the IMF for this denial on October 28.
In response to these developments, the IMF clarified that it had evaluated Nigeria’s petrol subsidy and FX rate policies prior to the recent reforms and deemed the subsidy “not cost-effective.”
The IMF explained, “Based on our research and international experience, we do not view the petrol subsidy as the best method for providing relief to Nigerians. This subsidy benefits not only low-income households but also wealthier citizens who do not require government support.”
The institution further noted evidence of subsidized petrol being smuggled into neighboring countries, where prices were higher, indicating that the subsidy inadvertently aided non-Nigerians.
By removing the subsidy, the IMF believes that Nigeria can redirect resources to priority areas such as social protection, health, education, and infrastructure.
The IMF also assessed Nigeria’s fixed exchange rate policy, which was in place until mid-2023, labeling it as unsustainable. They noted that not all dollar demand was met at the official rate, forcing many Nigerians to turn to the parallel market at a significantly higher cost.
“Until mid-2023, some Nigerians purchased dollars at the official rate of around N460, while others had to pay about N750 in the parallel market,” the IMF stated. “This disparity pressured the Central Bank of Nigeria’s reserves and was not a sustainable solution.”
The IMF concluded that by allowing the naira’s value to be determined by market conditions, all citizens can access U.S. dollars at the same price.
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