The International Monetary Fund (IMF) has advised the Federal Government (FG) to completely remove fuel and electrical subsidies early next year and instead focus on implementing revenue-based fiscal consolidation. This was disclosed in a statement at the end of IMF’s 2021 Article IV Mission. The statement reads, “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.”
The Washington-based fund stated the country’s incessant dependence on administrative measures to address continuous shortages of foreign exchange was negatively affecting confidence.
The IMF said, “Taking advantage of the favorable global conditions, improving current account and robust oil prices, the mission advised a move to a unified and market-clearing exchange rate without further delays.
“To preserve competitiveness, any exchange rate adjustment should be accompanied by clear communications regarding exchange rate policy going forward, macroeconomic policies to contain inflation and structural policies to facilitate new investment.”
It also advised that by January 2022, the implementation of cost-reflective electricity tariffs should not be delayed.
According to the statement, “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.”