The International Monetary Fund (IMF) has called on the Federal Government of Nigeria to entirely eliminate electricity subsidy in the country, citing the need to restore macroeconomic stability, especially in the wake of the removal of fuel subsidy in May 2023.
In its published ‘Post Financing Assessment (PFA)’ report, the IMF underscored the necessity of removing both fuel and electricity subsidies, emphasizing that the total removal of subsidies is imperative for Nigeria to overcome its economic challenges and achieve sustainable growth.
The IMF acknowledged the steps taken by the federal government so far in implementing reforms, particularly the removal of fuel subsidy and the unification of the official exchange rates.
However, it stressed the importance of further reforms, including the complete elimination of electricity subsidies.
“The new administration has made a strong start, tackling deep-rooted structural issues in challenging circumstances,” the IMF report stated.
“Immediately, it adopted two policy reforms that its predecessors had shied away from: fuel subsidy removal and the unification of the official exchange rates. Since then, the new CBN team has made price stability its core mandate and demonstrated this resolve by dropping its previous role in development finance.
“On the fiscal side, the authorities are developing an ambitious domestic revenue mobilization agenda. Like many other countries, Nigeria faces a difficult external environment and wide-ranging domestic challenges.
“External financing (market and official) is scarce, and global food prices have surged, reflecting the repercussions of conflict and geo-economic fragmentation.
“Per capita growth in Nigeria has stalled, poverty, and food insecurity are high, exacerbating the cost-of-living crisis.
“Low reserves and very limited fiscal space constrain the authorities’ option space. Against this backdrop, the authorities’ focus on restoring macroeconomic stability and creating conditions for sustained, high and inclusive growth is appropriate.
“The CBN has set out on a welcome path of monetary tightening. The Governor has committed to making price stability the core objective of monetary policy, and the CBN has taken actions to mop up excess liquidity.
“Continuing to raise the monetary policy rate until it is positive in real terms would be an important signal of the direction of monetary policy.
“The government’s focus on revenue mobilization and digitalization would improve public service delivery and safeguard fiscal sustainability. The envisaged reduction in the overall deficit in 2024 would help contain debt vulnerabilities and eliminate the need for CBN financing.
“Temporary and targeted support to the most vulnerable in the form of social transfers is needed, given the ongoing cost-of-living crisis. Fuel and electricity subsidies are costly, do not reach those that most need government support and should be phased out completely.”
