International Monetary Fund said on Friday that the Nigerian government should remove fuel and electricity subsidies completely next year and implement revenue-based fiscal consolidation.
According to Daily Trust, the IMF, in a statement at the end of its 2021 Article IV Mission, said with the emergence of fuel subsidies and slow progress on revenue mobilisation, the country’s “fiscal outlook faces significant risks.”
Describing fuel and electricity subsidies as regressive, the Washington-based fund maintained that Nigeria’s continued reliance on administrative measures to address persistent foreign exchange shortages was negatively impacting confidence.
The IMF also highlighted the need for major reforms in fiscal, exchange rate, trade and governance to alter “the long-running lackluster growth path”.
“On the immediate front, fiscal and external imbalances require removal of regressive fuel and electricity subsidies, tax administration reforms and installing a fully unified market-clearing exchange rate,” the IMF said.
“The complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor. The mission stressed the need to fully remove fuel subsidies and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act.”
The IMF further urges the FG not to delay the implementation of cost-reflective electricity tariffs as of January 2022.
“Well-targeted social assistance will be needed to cushion any negative impacts on the poor, particularly in light of still elevated inflation.
“Nigeria’s past experiences with fuel subsidy removal, which have all been short-lived and reversed, underscore the importance of building a consensus and improving public trust regarding the protection of the poor and efficient and transparent use of the saved resources.”
The IMF also warned that fiscal deficit is projected to worsen in the near term and remain elevated over the medium term.