IMF Urges Nigeria to Eliminate Fuel and Electricity Subsidies

In a recent development, the International Monetary Fund (IMF) has strongly advised the Nigerian government to eliminate what it termed as “hidden subsidies” on fuel and electricity. According to a report released by the IMF, these subsidies are projected to consume a significant portion of Nigeria’s Gross Domestic Product (GDP) in 2024.

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IMF Urges Nigeria to Eliminate Fuel and Electricity Subsidies

The report highlighted that subsidies are expected to account for three percent of the country’s GDP in 2024, marking a notable increase from the one percent recorded in the previous year. The IMF commended the Federal Government for its decision to gradually phase out these costly and inequitable energy subsidies.

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The IMF emphasized that eliminating these subsidies is essential for redirecting financial resources towards development initiatives, bolstering social safety nets, and maintaining sustainable debt levels. The organization stressed the importance of scaling up safety nets and addressing inflation before tackling implicit fuel and electricity subsidies.

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IMF Urges Nigeria to Eliminate Fuel and Electricity Subsidies

“Subsidies are costly and poorly targeted, with higher income groups benefiting more than the vulnerable,” the IMF stated in its report. It further recommended that once inflation subsides and adequate support for vulnerable populations is ensured, the government should move forward with removing these subsidies.

The IMF’s recommendation includes retaining a lifeline tariff to provide essential support to low-income households while phasing out the broader subsidies that disproportionately benefit higher-income groups. The removal of these subsidies, according to the IMF, would contribute to more efficient resource allocation and promote economic sustainability in Nigeria.

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