Stop Electricity Subsidy, IMF Tells Nigerian Government

In a recent report, the International Monetary Fund (IMF) has urged the Nigerian government to eliminate implicit fuel and electricity subsidies. The IMF warned that these subsidies would consume three per cent of the nation’s Gross Domestic Product (GDP) in 2024, up from one per cent the previous year.

The report commended the Federal Government for phasing out what it termed “costly and regressive energy subsidies,” emphasizing the importance of creating fiscal space for development spending and strengthening social protection while maintaining debt sustainability.

President Bola Tinubu’s administration abolished fuel subsidies during his inauguration on May 29, 2023. However, the IMF noted that adequate compensatory measures for the poor were not promptly scaled up, leading to the reintroduction of implicit subsidies by the end of 2023 due to concerns over corruption.

The IMF also highlighted that the price of electricity had tripled for high-use premium consumers, affecting 15 per cent of the 12 million customers who contribute to 40 per cent of electricity usage.

Addressing the ongoing agitation for the reversal of the Band A tariff, the IMF suggested that adjusting the tariff would help reduce subsidy expenditure by 0.1 per cent of GDP while continuing to provide relief to the poor, particularly in rural areas.

The IMF warned that failure to address these subsidies could result in a significant increase in implicit subsidy costs, reaching 3 per cent of GDP in 2024. It emphasized that these subsidies are costly and poorly targeted, with higher-income groups benefiting more than the vulnerable.

The report projected that implicit fuel subsidies could amount to as high as N8.4 trillion in 2024, while electricity subsidies for customers under Band B, C, D, and E were projected to reach N540 billion by the year’s end.

Despite denials from the Nigerian National Petroleum Company and the Minister of State for Petroleum (Gas), Heineken Lokpobiri, regarding backdoor fuel subsidies, the IMF’s call to end electricity subsidies comes amidst protests from Nigerians. These protests urge the Minister of Power, Adebayo Adelabu, to revert the Band A tariff to its previous state.