IMF Urges Nigerian Government to Halt Electricity Subsidy

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The International Monetary Fund (IMF) has cautioned the Nigerian government to eliminate what it terms as implicit subsidies on fuel and electricity.

In a recent report released by the IMF, the organization advised Nigeria that these subsidies would consume three percent of the nation’s Gross Domestic Product (GDP) in 2024, compared to one percent the previous year.

The IMF report commended the Federal Government for gradually phasing out “expensive and regressive energy subsidies,” emphasizing the importance of creating fiscal space for development initiatives and reinforcing social protection while maintaining debt sustainability.

President Bola Tinubu’s administration abolished fuel subsidies during his inauguration on May 29, 2023.

However, the IMF noted that “sufficient compensatory measures for the poor were not promptly expanded and subsequently paused due to concerns over corruption. Setting pump prices below cost reintroduced implicit subsidies by the end of 2023 to assist Nigerians in coping with high inflation and currency depreciation.”

The IMF also acknowledged that electricity prices had tripled for high-volume premium consumers on Band A feeders, constituting 15 percent of the 12 million customers who contribute 40 percent of electricity consumption.

As Nigerians push for reverting the Band A tariff from N206.80 per kilowatt-hour to N68, the IMF suggested that “the tariff adjustment would help reduce subsidy expenditure by 0.1 percent of GDP, while still offering relief to the poor, especially in rural areas.”

The IMF advocated that “once the safety net is expanded and inflation decreases, the government should address implicit fuel and electricity subsidies.”

It cautioned, “With pump prices and tariffs below cost recovery, implicit subsidy costs could rise to 3 percent of GDP in 2024 from 1 percent in 2023. These subsidies are expensive and poorly targeted, with higher-income groups benefiting more than the vulnerable.”

The IMF reiterated that “as inflation decreases and support for the vulnerable increases, expensive and untargeted fuel and electricity subsidies should be eliminated, while maintaining a lifeline tariff.”

It projected that the implicit fuel subsidy could reach as high as N8.4 trillion in 2024, up from N1.85 trillion in 2023, N4.4 trillion in 2022, N1.86 trillion in 2021, and N89 billion in 2020.

The electricity subsidy provided to customers under Bands B, C, D, and E was estimated to reach N540 billion by the end of 2024. Reports online indicate that the Nigerian National Petroleum Company Limited and the Minister of State for Petroleum (Oil), Heineken Lokpobiri, have consistently refuted claims that the Federal Government was subsidizing fuel through clandestine means.

Meanwhile, the IMF’s recommendation to eliminate electricity subsidies comes amid protests from Nigerians urging the Minister of Power, Adebayo Adelabu, to restore the Band A tariff to its previous level.

Organized labor has threatened to stage a protest on Monday if Adelabu does not respond to their demands.

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