Stop Electricity Subsidy, IMF Tells FG

by Ohepo Ohepo

The International Monetary Fund (IMF) has issued a warning to the Nigerian government regarding the economic impact of continuing implicit fuel and electricity subsidies, which it stated could consume up to three percent of the country’s Gross Domestic Product (GDP) in 2024. This represents a significant increase from the one percent recorded in the previous year.

In a recent report, the IMF highlighted the critical importance of phasing out these subsidies to free up fiscal space for development spending and to strengthen social protection while maintaining debt sustainability. This advice comes despite the measures already taken by President Bola Tinubu’s administration, which removed fuel subsidies at the onset of his term on May 29, 2023.

The IMF noted the government’s efforts but expressed concerns over the reintroduction of subsidies towards the end of the year to mitigate the effects of high inflation and currency depreciation. It pointed out that while electricity prices have surged, especially for high-use consumers on Band A feeders, the overall expenditure on subsidies remained burdensome and ineffectively targeted, with wealthier groups benefitting more than the vulnerable.

The report strongly advocated for the Nigerian government to eliminate these subsidies as soon as a robust safety net for the vulnerable is established and inflation is brought under control. According to the IMF, the implicit fuel subsidy is projected to swell to as much as N8.4 trillion in 2024, a stark increase from N1.85 trillion in 2023.

Furthermore, the IMF’s call to phase out electricity subsidies comes at a time when there is considerable public dissent against the recent electricity tariff adjustments. The increase in tariffs for Band A users from N206.80 per kilowatt-hour to N68 has sparked calls from Nigerians for a reversal, which has been supported by threats of protests from organized labor.

The Nigerian National Petroleum Company and Heineken Lokpobiri, Minister of State for Petroleum (Gas), have responded to these concerns, denying claims that the Federal Government has been indirectly maintaining fuel subsidies. Meanwhile, the public discontent and impending protests underscore the challenges faced by the government in balancing economic reforms with public sentiment.

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