• Monday, October 14, 2024
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Stop petrol, electricity subsidies once inflation cools – IMF to FG

Ghana’s cedi to strengthen on IMF deal, others stable

Ghana's cedi is expected to ride the wave of positive investor sentiment after the government's successful negotiations with the International Monetary Fund.

The International Monetary Fund has advised the federal government to end all forms of fuel and electricity subsidies as they benefit the rich rather than the poor.

According to its report titled “Nigeria: 2024 Article IV Consultation”, the Fund stated that once the social protection scheme has been enhanced and inflation slows, subsidies should be halted.

The Washington-based Fund said about 15 million households or 60 million Nigerians will potentially benefit from an enhanced social intervention scheme the federal government developed with World Bank support.

“In response to governance concerns, the authorities automated and digitalized the system to build a robust mechanism that delivers swift and targeted support to vulnerable households—some 15 million households or 60 million Nigerians potentially benefit from the scheme,” the IMF said.

“Once the safety net has been scaled up and inflation subsides, the government should tackle implicit fuel and electricity subsidies,” it added.

The Fund noted that subsidies are costly and poorly targeted, with higher-income groups benefiting more than the vulnerable.

It also stated that with pump prices and tariffs below cost-recovery, subsidy costs could increase to three percent of gross domestic product (GDP) in 2024, compared to one percent of GDP in 2023.

The IMF advice comes as Nigeria battles with record high inflation hitting 33.2 percent in March up from 31.7 percent in February, 2024.

Last May, President Bola Tinubu announced the removal of the costly petrol subsidy which has seen the price of the premium motor spiralled, with transportation fare soaring.

Similarly, on April 3, the Nigerian Electricity Regulatory Commission (NERC) approved an increase in electricity tariff for customers under the Band A category to N225 per kilowatt-hour (kwh), from N66 — to reduce electricity subsidy.

Meanwhile, on May 6, electricity distribution companies (DisCos) said the tariff of Band A customers has been reduced to N206.80 per kwh.

There have been growing concerns that the government is yet to totally remove petrol subsidies.

Nasir el-Rufai, the former governor of Kaduna state, had said the federal government is spending more on petrol subsidy than before.

Echoing same sentiment, Gabriel Ogbechie, chief executive officer (CEO) of Rainoil Limited, on April 17, said the federal government now spends N600 billion on petrol subsidy monthly.

However, the IMF said its staff projected a higher fiscal deficit than anticipated in the 2024 budget, adding that “higher implicit” fuel and electricity subsidies would drive the increase.

Aside from the subsidies, the Fund said other drivers are lower oil and gas revenue projections, continued suspension of excise measures included in the medium-term expenditure framework (MTEF), and higher interest costs.

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