IMF Urges FG to Cease Petrol and Electricity Subsidies as Inflation Eases

By Milcah Tanimu

The International Monetary Fund (IMF) has advised the federal government to discontinue all subsidies on fuel and electricity, arguing that these subsidies primarily benefit the wealthy rather than the impoverished.

In its report titled “Nigeria: 2024 Article IV Consultation,” the IMF suggested that once the social protection scheme has been bolstered and inflation shows signs of abating, it would be appropriate to end subsidies.

The IMF commended the government’s efforts to enhance the social intervention scheme, developed with World Bank support, which aims to provide swift and targeted assistance to vulnerable households, potentially benefiting around 15 million households or 60 million Nigerians.

The Fund emphasized that subsidies are not only expensive but also poorly targeted, with higher-income groups reaping greater benefits than the vulnerable.

Additionally, the IMF highlighted that with pump prices and tariffs currently below cost-recovery levels, subsidy costs could surge to three percent of gross domestic product (GDP) in 2024, up from one percent of GDP in 2023.

This advice from the IMF coincides with Nigeria’s struggle against record-high inflation, which reached 33.2 percent in March 2024, up from 31.7 percent in February.

Despite President Bola Tinubu’s announcement last May regarding the removal of petrol subsidies and subsequent increases in petrol prices, concerns persist about the government’s commitment to entirely eliminating these subsidies.

Former Kaduna state governor Nasir el-Rufai and Gabriel Ogbechie, CEO of Rainoil Limited, have both expressed concerns about the continued spending on petrol subsidies, with Ogbechie stating that the government now spends a staggering N600 billion monthly on petrol subsidy alone.

The IMF staff projected a higher fiscal deficit than anticipated in the 2024 budget, attributing the increase to “higher implicit” fuel and electricity subsidies, among other factors such as lower oil and gas revenue projections and higher interest costs.