The International Monetary Fund (IMF) has advised the Nigerian government to fully remove fuel subsidy and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act (PIA).
The IMF, in its 2021 Article IV Mission statement released yesterday also projected that despite high oil prices, Nigeria’s fiscal deficit would widen in 2021 to 6.3 per cent of Gross Domestic Product (GDP).
Fiscal deficit is projected at 3.93 per cent and 3.39 per cent of GDP in Nigeria’s 2021 and 2022 budgets respectively.
The IMF, in the report said: “The complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor.
“In addition, 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 rsources.”
The IMF observed that there were significant downside risks to the near-term fiscal outlook from the ongoing COVID-19 pandemic, weak security situation and spending pressures associated with the electoral cycle.
According to the IMF, over the medium term, without bold revenue mobilisation efforts, fiscal deficits are projected to stay elevated above the pre-pandemic levels with public debt increasing to 43 per cent in 2026.
It stated: “With the emergence of fuel subsidies and slow progress on revenue mobilisation, the fiscal outlook faces significant risks. Continued reliance on administrative measures to address persistent foreign exchange shortages is negatively impacting confidence.”
The IMF observed that the Nigerian economy “is recovering” from a historic downturn benefiting from government policy support, rising oil prices and international financial assistance.
It noted that the Nigerian authorities’ pro-active approach had contained the COVID-19 infection rates and fatalities, adding that with the emergence of fuel subsidies and slow progress on revenue mobilisation, the fiscal outlook faces significant risks.