The Nigerian government has received a warning from the International Monetary Fund to eliminate what it refers to as implicit gasoline and energy subsidies. In an IMF study that was just released, the organization informed Nigeria that in 2024, the subsidies will consume 3% of the country’s GDP, up from 1% the year before.
The Federal Government was applauded by the IMF, according to the report, among other things for phasing out “costly and regressive energy subsidies,” noting that doing so was essential to ensuring debt sustainability while freeing up funds for social security and development expenditures.
On May 29, 2023, President Bola Tinubu’s administration eliminated gasoline subsidies.
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 Limited and the Minister of State for Petroleum (Oil), 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.
