The International Monetary Fund (IMF) has urged the federal government to fully eliminate subsidies for fuel and electricity, highlighting that these financial supports are not only expensive but also ineffective in benefiting the populations most in need of assistance.
Although not explicitly mentioned, the underlying implication of removing these subsidies is a likely surge in the prices of electricity and fuel.
This is because current subsidized rates are thought to be significantly below the actual market prices. By phasing out these subsidies, the government would allow fuel and electricity prices to align more closely with their true market value, potentially leading to increased costs for consumers.
The institution stated this in its latest press release on Nigeria titled “IMF Executive Board Concludes Post Financing Assessment with Nigeria.”
The bank also acknowledged the reforms currently embarked on by the current administration such as fuel subsidy removal and the unification of the exchange rate.
On fuel and electricity subsidies, the IMF stated that the government had decided to partially reverse fuel subsidy removal by capping retail prices and electricity prices respectively, as a way to slow down inflation. It also cited the government’s decision to suspend VAT on diesel as another inflation reduction move.
However, in its assessment, the IMF opined the fuel and electricity subsidies need to be removed to allow market forces to determine the prices. Instead, it recommended that the government focus on revenue generation and digitization of public service delivery as a strategy for reducing fiscal deficits.
Based on these recommendations, the IMF suggested that electricity and fuel subsidies be phased out completely.
The IMF believes some of the reforms of the government have been a huge step in the right direction, however, it wants the government to go further by taking off subsidies completely to complement reforms of the monetary policy.
Despite these recommendations from the IMF, implementing such reforms demands a considerable degree of political determination from the government to persuade the Nigerian populace that these adjustments are implemented with a degree of compassion and consideration for the economic challenges many are currently enduring.
In addition, labour unions are expected to continue their advocacy for wage increases, especially in the context of any economic reforms that entail the removal of subsidies.
This adds another layer of complexity to the situation, as the government must navigate the delicate balance between advancing necessary economic reforms and addressing the immediate financial concerns of its workforce.