The International Monetary Fund has encouraged the Federal Government to follow through on its promise to eliminate gasoline subsidies by mid-2023.
According to the IMF, the government must implement substantial fiscal reforms in order to generate the necessary policy space, protect public debt, and minimize risks.
This was mentioned by the Washington-based lender in a report titled ‘IMF Executive Board Concludes 2022 Article IV Consultation with Nigeria’ published on its website on Wednesday.
It noted that, despite increased oil prices, the country’s fiscal deficit was expected to grow further in 2022, owing mostly to hefty fuel subsidy expenses. While the current account may have improved in 2022, foreign currency reserves may have decreased due to capital outflow pressures.
According to the report, Nigeria has missed out on the opportunity to reap the benefits from higher global oil prices in 2022. It said the government needs to take decisive fiscal and monetary tightening to secure macroeconomic stability, combined with structural reforms to improve governance, strengthen the agricultural sector, and boost inclusive, sustainable growth.
The IMF said, “Directors highlighted the need for bold fiscal reforms to create needed policy space, put public debt on sound footing, and reduce vulnerabilities.
“They urged the authorities to deliver on their commitment to remove fuel subsidies by mid-2023, and to increase well-targeted social spending. Strengthening revenue mobilization, including through tax administration reforms, expanding the tax automation system and strengthening taxpayer segmentation, and improving tax compliance is also a priority.
“In the medium term, Directors recommended modernizing customs administration, rationalising tax incentives, and raising tax rates to the levels of the Economic Community of West African States.”
The global lender also stated that the Nigerian economy has recovered from the output losses incurred during the COVID-19 epidemic, thanks to favorable oil prices and robust consuming activity. Despite this, the spillover consequences of the Ukrainian war have resulted in rising domestic food costs, exacerbating the pandemic’s scarring effects, particularly on the most disadvantaged Nigerians.
This is not the first time the IMF has advised the Federal Government to eliminate fuel subsidies. “Directors also suggested the abolition of untargeted fuel subsidies, with compensation measures for the poor and transparent utilization of saved resources,” it added in its 2022 Article IV report.
“They stressed the importance of further strengthening social safety nets.”