IMF urges FG To Completely Remove Fuel, Electricity Subsidies Early 2022

Posted by OUR REPORTER | 20 November 2021 | 94 times



 

BY OUR REPORTER

The International Monetary Fund on Friday urged the Nigerian government to ensure total removal of both fuel and electricity subsidies early next year and to also implement revenue-based fiscal policies.

In a statement at the end of its 2021 Article IV Mission, IMF, said that with the emergence of fuel subsidies and slow progress on revenue mobilisation, the country’s “fiscal outlook faces significant risks”.

It advised that the continued reliance on administrative measures to address persistent foreign exchange shortages was negatively impacting confidence.

The IMF warned that except Nigerian authorities embark on urgent fiscal and exchange rate reforms, the medium-term outlook faces sub-par growth.

IMF criticized what it referred to as a “the long-running lackluster growth path”, urging the government to embark on major reforms in fiscal, exchange rate, trade and governance.

“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.”

 In particular, the IMF advised that the implementation of cost-reflective electricity tariffs from 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 resources.”

It revealed that “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.

“General government interest payments are expected to remain high as a share of revenues making the fiscal position highly vulnerable to real interest rate shocks and dependent on central bank financing,” it stated.


Source: GRANDNEWS

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