The International Monetary Fund (IMF) has issued a cautionary statement regarding Nigeria’s fiscal policies, particularly concerning price caps on fuel and electricity tariffs.
The IMF predicts that maintaining these price caps below the cost recovery could result in a fiscal cost equivalent to 3 percent of the country’s gross domestic product (GDP) in 2024.
Despite recent policy adjustments such as the increase in the Monetary Policy Rate (MPR) by 400 basis points to 22.75 percent, the IMF stresses the importance of aligning prices with market realities to mitigate inflation and foster economic stability.
In its recent report on the completion of its mission to Nigeria, the IMF acknowledges improvements in revenue collection and oil production. However, it highlights the challenges posed by low revenue mobilisation and the adverse impact on the government’s ability to respond effectively to macroeconomic shocks.
The capping of fuel pump prices and electricity tariffs below cost recovery is identified as a significant fiscal risk, potentially undermining the country’s economic progress and long-term development goals.
Furthermore, the IMF emphasises the urgency of implementing a cash transfer program before addressing fuel and electricity subsidies. The report underscores the need to prioritise social protection measures, particularly in light of rising food insecurity. With approximately 8 percent of Nigerians considered food insecure, the IMF commends the government’s efforts to reform the social welfare system and distribute essential agricultural resources across the country.
