The International Monetary Fund (IMF) has issued a stark warning to the Nigerian government, urging the removal of what it terms as implicit subsidies on fuel and electricity.

In a recent report published by the IMF, the organization cautioned Nigeria that these subsidies are projected to consume three percent of the nation’s Gross Domestic Product (GDP) in 2024, a significant increase from the one percent recorded in the previous year.

According to the report, the IMF commended the Federal Government for, among other things, phasing out “costly and regressive energy subsidies,” asserting that this move is critical to creating fiscal space for development spending and strengthening social protection while maintaining debt sustainability.

The IMF noted that President Bola Tinubu’s administration removed fuel subsidies during his inauguration on May 29, 2023. However, the IMF observed 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 a threefold surge in electricity prices for high-use premium consumers on Band A feeders, constituting 15 percent of the 12 million customers who account for 40 percent of electricity usage.

As Nigerians agitate for the reversal of the Band A tariff from N206.80 per kilowatt-hour to N68, the IMF submitted that “the tariff adjustment will help reduce expenditure on subsidies by 0.1 percent 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 percent of GDP in 2024 from 1 percent 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.

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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.

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 organized labor has threatened to stage a protest on Monday if Adelabu fails to heed their calls.