IMF Warns: Nigeria’s Fuel, Electricity Subsidies to Incur N2.3 Trillion Cost

In a recent report, the International Monetary Fund (IMF) has issued a warning that the continuation of fuel and electricity subsidies in Nigeria will amount to N2.33 trillion, equivalent to three percent of the country’s Gross Domestic Product (GDP) in 2024. The findings were revealed during the Staff Article IV Consultations, with the IMF Country Office in Abuja releasing the report yesterday.

The IMF team, led by Axel Schimmelpfennig, IMF Mission Chief for Nigeria, conducted consultations in Lagos and Abuja from February 12 to 23, 2024, for the 2024 Article IV Consultations with Nigeria.

The report emphasizes that capping fuel pump prices and electricity tariffs below cost recovery could pose a fiscal cost of up to 3 percent of GDP in 2024. With Nigeria’s real GDP standing at N77.93 trillion, this projection translates to N2.33 trillion.

The IMF staff urged the federal government to prioritize the implementation of social safety nets, particularly through the cash-transfer program, before addressing the fuel subsidies and electricity tariffs below cost recovery.

The report acknowledges the challenging economic outlook for Nigeria, citing a GDP growth of 2.8 percent in 2023, slightly below population growth dynamics. While positive indicators such as improved oil production and anticipated agricultural harvests are noted for 2024, challenges such as high inflation, naira weakness, and policy tightening are expected to impede growth.

The IMF report underscores the need for immediate attention to rising food insecurity, with approximately 8 percent of Nigerians classified as food insecure. The approval of an effective and well-targeted social protection system is welcomed, along with the government’s initiatives such as releasing grains, seeds, and fertilizers, as well as the introduction of dry-season farming.

Despite encouraging improvements in revenue collection and oil production, the report highlights Nigeria’s low revenue mobilization, constraining the government’s capacity to respond to shocks and promote long-term development. Non-oil revenue collection saw a modest improvement of 0.8 percent of GDP in 2023, partly attributed to naira depreciation, while oil production reached 1.65 million barrels per day in January due to enhanced security measures.