By Adedapo Adesanya
The International Monetary Fund (IMF) has warned the Nigerian government the payment of subsidies on petrol and electricity could take up to 3 per cent of the country’s gross domestic product (GDP) in 2024.
The IMF stated this in a statement released on Monday on the completion of its 2024 Article IV Mission to Nigeria.
The lender said that the recent improvements in revenue collection and oil production are encouraging, as “low revenue mobilization constrains the government’s ability to respond to shocks and to promote long-term development.”
But it emphasised that, “The capping of fuel pump prices and electricity tariffs below cost recovery could have a fiscal cost of up to 3 per cent of GDP in 2024.”
Recall that during his inaugural speech in May last year, President Bola Tinubu announced that “The fuel subsidy is gone,” adding that the 2023 budget by his predecessor, Mr Muhammadu Buhari, made no provision for fuel subsidy and more so, subsidy payment was no longer justifiable.
The removal has tripled the price of petrol across major cities from less than N200 per litre to about N700 per litre. This has also led to a huge increase in the costs of goods and services, further worsening the economic situation for millions of citizens.
However, current trajectories indicate that prices should be higher but it has not moved based on the removal of the caps. This, according to experts, can only point to continued payment of subsidies of up to N1 trillion per month.
The Bretton Wood institution warned that the continuous payment of subsidies would affect the government, especially at a time when it is struggling to feed its citizens.
It said about 8 per cent (about 18.6 million Nigerians) are food insecure, and urged the federal government to tackle rising food insecurity as its immediate priority.
Despite this, it welcomed the FG’s approval of an “effective and well-targeted social protection system,” the government’s release of grains, seeds, and fertilizers, as well as the introduction of dry-season farming.
“The recently approved targeted social safety net program that will provide cash transfers to vulnerable households needs to be fully implemented before the government can address costly, implicit fuel and electricity subsidies in a manner that will ensure low-income households are protected,” it, however, said.
The IMF said it supports the decision of the Central Bank of Nigeria (CBN) Monetary Policy Committee’s (MPC) decision to further tighten monetary policy by hiking the policy rate by 400 basis points to 22.75 per cent, as it believes, “should help contain inflation, which reached 29.9 per cent year-on-year in January 2024, and put pressures on the Naira.”
On the country’s growth prospects, the IMF said — “Nigeria’s economic outlook is challenging. Economic growth strengthened in the fourth quarter, with GDP growth reaching 2.8 per cent in 2023.
“This falls slightly short of population growth dynamics. Improved oil production and an expected better harvest in the second half of the year are positive for 2024 GDP growth, which is projected to reach 3.2 per cent, although high inflation, Naira weakness, and policy tightening will provide headwinds.”
Modupe Gbadeyanka