The International Monetary Fund [IMF] has warned that the continuation of fuel and electricity subsidy will cost Nigeria N2.33 trillion or three percent of its Gross Domestic Product in 2024.
This was contained in the report of the Staff Article IV Consultations issued by the IMF Country Office in Abuja.
According to the Fund in the report released on Tuesday: “The capping of fuel pump prices and electricity tariffs below cost recovery could have a fiscal cost of up to 3 percent of GDP in 2024.”
Given the country’s real GDP of N77.93 trillion, the three percent projected by IMF amounts to N2.33 trillion.
The team, led by Axel Schimmelpfennig, IMF Mission Chief for Nigeria, visited Lagos and Abuja from February 12 to 23, 2024 to hold discussions for the 2024 Article IV Consultations with Nigeria.
The staff urged the Federal Government to implement social safety nets through the cash transfer programme before addressing the fuel subsidies and electricity tariffs below cost recovery.
According to the report: “Recently approved targeted social safety net program that will provide cash transfers to vulnerable households needs to be fully implemented before the government can address costly, implicit fuel and electricity subsidies in a manner that will ensure low-income households are protected.
“Nigeria’s economic outlook is challenging. Economic growth strengthened in the fourth quarter, with GDP growth reaching 2.8 percent in 2023.
“This falls slightly short of population growth dynamics. Improved oil production and an expected better harvest in the second half of the year are positive for 2024 GDP growth, which is projected to reach 3.2 percent, although high inflation, naira weakness, and policy tightening will provide headwinds.
“With about 8 percent of Nigerians deemed food insecure, addressing rising food insecurity is the immediate policy priority.
“In this regard, staff welcomed the authorities’ approval of an effective and well-targeted social protection system. The team also welcomed the government’s release of grains, seeds, and fertilizers, as well as Nigeria’s introduction of dry-season farming.
“Recent improvements in revenue collection and oil production are encouraging. Nigeria’s low revenue mobilization constrains the government’s ability to respond to shocks and to promote long-term development.
“Non-oil revenue collection improved by 0.8 percent of GDP in 2023, helped by naira depreciation.
“Oil production reached 1.65 million barrels per day in January as the result of enhanced security.” [Vanguard]
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