The International Monetary Fund has warned the Nigerian government to remove what it called implicit fuel and electricity subsidies.
In a report published recently by the IMF, the organisation
told Nigeria that the subsidies would guzzle three per cent of the nation’s
Gross Domestic Product in 2024 as against one per cent in the year before.
According to the report, the IMF commended the Federal
Government for, among other things, phasing out “costly and regressive energy
subsidies”, saying this was critical to creating fiscal space for development
spending and strengthening social protection while maintaining debt
sustainability.
President Bola
Tinubu’s administration removed fuel subsidies during his inauguration on May
29, 2023.
IMF noted, however, that “adequate compensatory measures for
the poor were not scaled up promptly and subsequently paused over corruption
concerns. Capping pump prices below cost reintroduced implicit subsidies by
end-2023 to help Nigerians cope with high inflation and exchange rate
depreciation.”
The body also acknowledged that the price of electricity had
tripled for high-use premium consumers on Band A feeders, 15 per cent of the 12
million customers who account for 40 per cent of electricity usage.
As Nigerians agitate for the reversal of the Band A tariff
from N206.80 per kilowatt-hour to N68, IMF submitted that “the tariff
adjustment will help reduce expenditure on subsidies by 0.1 per cent of Gross
Domestic Product, while continuing to provide relief to the poor, particularly
in rural areas”.
The IMF advocated that “once the safety net has been scaled
up and inflation subsides, the government should tackle implicit fuel and
electricity subsidies”.
It warned, “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”.
The IMF reechoed that “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”.
It projected that the implicit fuel subsidy could gulp as
high as N8.4tn in 2024 from N1.85tn in 2023, N4.4tn in 2022, N1.86tn in 2021
and N89bn in 2020.
The electricity subsidy being paid to customers under Band
B, C, D, and E was projected to stand at N540bn by the end of 2024.
The Nigerian National Petroleum Company and the Minister of
State for Petroleum (Gas), Heineken Lokpobiri, have repeatedly debunked claims
that the Federal Government was paying fuel subsidies through the back door.
Meanwhile, the IMF’s call for the removal of electricity
subsidy is coming amid protests from Nigerians who are calling on the Minister
of Power, Adebayo Adelabu, to return the Band A tariff to the status quo.
The organised labour has threatened to stage a protest on
Monday if Adelabu fails to heed their calls.
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