IMF advises FG to stop subsidizing electricity

The Nigerian government has received a warning from the International Monetary Fund to eliminate what it refers to as implicit gasoline and energy subsidies.

In an IMF report that was just released, the organization informed Nigeria that in 2024, the subsidies will consume 3% of the country’s GDP, up from 1% the year before. The Federal Government was commended by the IMF, according to the report, among other things for phasing out “costly and regressive energy subsidies,” noting that doing so was essential to ensuring debt sustainability while freeing up funds for social security and development expenditures.

On May 29, 2023, President Bola Tinubu’s administration eliminated fuel subsidies. However, the IMF pointed out that “sufficient compensatory measures for the poor were not scaled up promptly and were then paused due to concerns about corruption.” By the end of 2023, implicit subsidies would be reinstated by capping pump prices below cost, assisting Nigerians in adjusting to high inflation and depreciating currency rates. The organization also stated that 15% of the 12 million customers, or 40% of the total, who are high-use premium consumers on Band A feeders now pay three times as much for power.

The IMF stated that “the tariff adjustment will help reduce expenditure on subsidies by 0.1 per cent of Gross Domestic Product, while continuing to provide relief to the poor, particularly in rural areas” in response to Nigerians’ demands for the Band A tariff to be reversed from N206.80 to N68 per kilowatt-hour.

The IMF recommended that “the government should tackle implicit fuel and electricity subsidies once the safety net has been scaled up and inflation subsides.”

The warning read, “Implicit subsidy costs could increase to 3% of GDP in 2024 from 1% in 2023 if pump prices and tariffs remain below cost-recovery.” Higher income groups get more from these expensive, ill-targeted subsidies than do the underprivileged. The IMF reiterated that “expensive and untargeted fuel and electricity subsidies should be removed, while, e.g., retaining a lifeline tariff, as inflation subsides and support for the vulnerable is ramped up.”

The implicit fuel subsidy was predicted to reach N8.4 trillion in 2024, up from N1.85 trillion in 2023, N4.4 trillion in 2022, N1.86 trillion in 2021, and N89 billion in 2020. By the end of 2024, it was estimated that the electricity subsidy given to subscribers under Band B, C, D, and E would total N540 billion.

Heineken Lokpobiri, the Minister of State for Petroleum (Oil), and the Nigerian National Petroleum Company Limited have refuted allegations on multiple occasions that the Federal Government was providing fuel subsidies through a covert channel. Amidst protests by Nigerians demanding that the Minister of Power, Adebayo Adelabu, reinstate the Band A pricing, the IMF has called for the abolition of the electricity subsidy.

If Adelabu ignores their demands, organized labor has threatened to hold a demonstration on Monday.

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