The International Monetary Fund has advised the Nigerian government to eliminate implicit fuel and electricity subsidies, warning that these subsidies could consume three percent of the nation's GDP in 2024, up from one percent the previous year.
In a recent report, the IMF commended the Federal Government for phasing out costly energy subsidies, emphasizing the importance of creating fiscal space for development spending and strengthening social protection while maintaining debt sustainability.
Although fuel subsidies were removed during President Bola Tinubu's administration, the IMF noted concerns about the adequacy of compensatory measures for the poor and the reintroduction of implicit subsidies by capping pump prices below cost due to inflation and exchange rate depreciation.
The IMF suggested adjusting electricity tariffs to reduce subsidy expenditure while providing relief to the poor, particularly in rural areas. It emphasized the need to scale up safety nets and tackle implicit subsidies once inflation subsides.
Warning of the increasing cost of implicit subsidies, the IMF urged the removal of costly and poorly targeted fuel and electricity subsidies, projecting significant subsidy costs for both fuel and electricity in 2024.
Despite claims by authorities that fuel subsidies are not being paid through the back door, the IMF's call to end electricity subsidies comes amid protests from Nigerians demanding the restoration of previous tariff levels.
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