IMF Calls on Nigeria to Remove Fuel Subsidy by Mid-2023
The International Monetary Fund (IMF) has urged the Nigerian government to deliver on its commitment to remove fuel subsidies by mid-2023.
In a recent report by The Washington-based lender titled ‘IMF Executive Board Concludes 2022 Article IV Consultation with Nigeria’ it stated that Nigeria’s economy has recouped the output losses sustained during the COVID-19 pandemic supported by favourable oil prices and buoyant consumption activities.
The fund said the directors highlighted the need for bold fiscal reforms to create needed policy space, put public debt on sound footing, and reduce vulnerabilities.
“They urged the authorities to deliver on their commitment to remove fuel subsidies by mid-2023, and to increase well-targeted social spending.”
Despite rising oil prices, the IMF said, the government’s fiscal deficit is estimated to have widened further in 2022, mainly due to high fuel subsidy costs.
It explained that while the current account is estimated to have improved in 2022, foreign currency reserves declined amidst capital outflow pressures.
The report noted that the country’s Gross domestic product (GDP) adjusted for inflation has already reached its pre-crisis level and the third quarter of 2022 marked the eighth consecutive quarter of positive growth despite continued challenges in the oil sector.
It said the oil sector faces downside risks from possible production and price volatility, while climate-related natural disasters like floods pose the same risks to agricultural production.
“In the medium term, there are upside risks from a potentially stronger reform momentum and a larger-than-expected rebound in oil and gas production,” it said.
The IMF said its directors welcomed the broadening of Nigeria’s economic recovery but noted that the opportunity to reap the benefits from higher global oil prices was missed.
“They underscored near-term downside risks arising from elevated inflation, high debt-servicing costs, external sector pressures, and oil sector volatility,” the IMF said.
Looking ahead, the IMF recommended decisive fiscal and monetary tightening to secure macroeconomic stability, combined with structural reforms to improve governance, strengthen the agricultural sector, and boost inclusive, sustainable growth.
The IMF’s Resident Representative for Nigeria, Mr. Ari Aisen had last year disclosed that fuel subsidy payouts averaged N500 billion monthly and could hit a record N6 trillion mark by the end of 2022.
This puts so much pressure on the need for government to borrow in order to finance the subsidy.
According to the Debt Management Office (DMO), as at March 2022, total government borrowing stood at a whopping N41.6 trillion. The worrying part of the report is that debt service to revenue ratio which currently stands at over 80 % presently is estimated to become 100 % by year 2026, implying that all government revenues by then would be used just to service its debts.
