The International Monetary Fund has advised the Nigerian government to replace fuel and electricity subsidies completely early next year with revenue-based fiscal consolidation.
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 mobilization, the country’s “fiscal outlook faces significant risks”.
It said the country’s continued reliance on administrative measures to address persistent foreign exchange shortages was negatively impacting confidence.
It highlighted the need for major reforms in fiscal, exchange rate, trade, and governance to alter what it described as “the long-running lackluster growth path”.
It said, “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 further said the implementation of cost-reflective electricity tariffs as of January 2022 should not be delayed.
“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.”
