The International Monetary Fund (IMF) has said that there is an urgent need for Nigeria to completely phase out costly fuel and electricity subsidies as part of measures to address its economic challenges.
These subsidies, deemed inefficient and ineffective in reaching intended beneficiaries, were identified as worsening the nation’s fiscal challenges and hindering efforts to address poverty and food insecurity.
In its report titled ‘IMF Executive Board Concludes Post Financing Assessment with Nigeria,’ the IMF reiterated the importance of eliminating the subsidies to redirect resources towards more targeted and impactful social welfare programmes.
Amidst the prevailing cost-of-living crisis, the IMF advocated for targeted social transfers to provide temporary assistance to the most vulnerable segments of the Nigerian population.
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“Temporary and targeted support to the most vulnerable in, the form of social transfers is needed, given the ongoing cost-of-living crisis. Fuel and electricity subsidies are costly, do not reach those that most need government support, and should be phased out completely,” it said.
While the removal of petrol subsidies, implemented in May 2023, was aimed at addressing the nation’s fiscal challenges, it has also exacerbated living standards, with the disposable income of Nigerians experiencing a continuous decline amid inflationary pressures.
The IMF also drew attention to the economic hurdles confronting Nigeria, emphasizing the nation’s stalled per-capita growth and mounting poverty levels.
Against the backdrop of these challenges, Nigeria finds itself grappling with a severe cost-of-living crisis, further compounded by low reserves and limited fiscal space that constrain the government’s policy options, the fund said.
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“Nigeria faces a difficult external environment and wide-ranging domestic challenges. External financing (market and official) is scarce, and global food prices have surged, reflecting the repercussions of conflict and geo-economic fragmentation.
“Per-capita growth in Nigeria has stalled, poverty and food insecurity are high, exacerbating the cost-of-living crisis. Low reserves and very limited fiscal space constrain the authorities’ option space,” the report said.
The global institution noted that the government’s emphasis on revenue mobilization and digitalization could enhance the delivery of public services and ensure fiscal sustainability.
It said the projected reduction in the overall deficit for 2024 is seen as crucial in addressing debt vulnerabilities and reducing dependence on financing from the Central Bank of Nigeria (CBN).
