The International Monetary Fund (IMF) has warned the federal government against price caps on fuel and electricity tariffs below the cost recovery.
It said such caps could result in a fiscal cost of 3% in the country’s 2024 Gross Domestic Products (GDP).
The IMF report said Nigeria has made improvements in revenue collection and oil production.
However, it noted that persistent low revenue mobilisation weakened government’s response to some macro-economic shocks.
The report followed the completion of IMF’s mission to Nigeria, noting that the recent policy decisions by the government, especially the increase in MPR by 400 basis points to 22.75% will help tame inflation.
It said; “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. 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.”
It also recommended that cash transfer program be implemented before the government addresses the ‘’costly, implicit fuel and electricity subsidies.”
The report also called on the federal government to prioritise tackling food insecurity, estimating 1 in 10 at 8% of Nigeria’s over 200 million population are at risk of being food insecure.
IMF commeded the federal government’s drive to reform the social welfare system and the release of grains across the country.
The report however noted that “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.”
In addition, IMF emphasised the need for the Nigerian government to prioritise the full implementation of its cash transfer program to aid vulnerable households.
It noted that the step is crucial before revaluating the costly fuel and electricity subsidies.
This recommendation emerged in the backdrop of concerns raised by the IMF over the fiscal burdens emanating from the current practice of subsidising fuel and electricity in a statement following a recent visit by an IMF team led by Axel Schimmelpfennig, the IMF mission chief for Nigeria.
According to the statement, the continuation of capping fuel pump prices and electricity tariffs below their recovery costs could lead Nigeria to incur fiscal costs of up to 3% of its Gross Domestic Product (GDP) in 2024.
