By Leshi Adebayo
In a bid to implement a revenue-based consolidation, the International Monetary Fund (IMF) has urged the Federal Government to ensure a total removal of fuel and electricity subsidies in the beginning of year 2022.
In a statement made at the end of its 2021 Article IV Mission, the IMF stated that the existence of fuel and electricity subsidies and slow progress on revenue mobilisation will bring about Nigeria’s fiscal outlook facing significant risks.
The fund organization stated that reliance on administrative measures to address persistent foreign exchange shortages had a continuous negative impact on confidence.
It said, “On the immediate front, fiscal and external imbalances require removal of regressive fuel and electricity subsidies, tax administration reforms and installing a fully unified market-clearing exchange rate.
“The complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor.
“The mission stressed the need to fully remove fuel subsidies and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act.”
Speaking further, the IMF said the implementation of cost-reflective electricity tariffs by January 2022 should not be postponed.
“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 resources,” it noted.
Again, the Washington-based fund projected that the headline fiscal deficit will worsen in the near term and remain elevated over the medium term.
It said, “Despite much higher oil prices, the general government fiscal deficit is projected to widen in 2021 to 6.3 per cent of GDP, reflecting implicit fuel subsidies and higher security spending, and remain at that level in 2022.
“There are significant downside risks to the near-term fiscal outlook from the ongoing pandemic, weak security situation and spending pressures associated with the electoral cycle.”
The IMF noted that over the medium term, without strong revenue mobilisation measures, fiscal deficits could remain high above the pre-pandemic levels with public debt elevating to 43% by 2026.
