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FG needs to implement cash transfer programme before addressing fuel, electricity subsidies – IMF

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The International Monetary Fund (IMF) has emphasised the need for the Nigerian government to prioritise the full implementation of its cash transfer program to aid vulnerable households.

This step is crucial before the government takes on the task of revaluating the costly fuel and electricity subsidies.

According to the IMF, the established social safety net programme, designed to disburse cash transfers to the poor and vulnerable, needs to be operational to its fullest capacity. This approach ensures that the economically vulnerable segments of the population remain shielded as the government contemplates adjustments to the existing fuel and electricity subsidy framework.

This recommendation emerged in the backdrop of concerns raised by the IMF over the fiscal burdens emanating from the current practice of subsidising fuel and electricity in a statement following a recent visit by an IMF team led by Axel Schimmelpfennig, the IMF mission chief for Nigeria.

According to the statement, the continuation of capping fuel pump prices and electricity tariffs below their recovery costs could lead Nigeria to incur fiscal costs of up to 3% of its Gross Domestic Product (GDP) in 2024.

This visit, part of the 2024 Article IV Consultations, saw the team engage in discussions with key Nigerian officials in Lagos and Abuja from February 12 to February 23, 2024.

The statement read partly:

The IMF notes that despite Nigeria’s economy showing signs of growth in the fourth quarter of 2023, with a GDP growth of 2.8%, this growth barely keeps pace with population dynamics.

The Fund further projects an improvement in GDP growth to 3.2% in 2024, supported by increased oil production and anticipated better harvests. However, challenges such as high inflation, a weakening naira, and the need for tighter monetary policies are expected to pose significant headwinds.

During its visit, the IMF team praised the Nigerian government’s efforts in addressing food insecurity, which affects approximately 8% of the population.

The team also acknowledged the approval of a targeted social safety net programme intended to provide cash transfers to vulnerable households. This initiative, coupled with improvements in revenue collection and oil production, is seen as a positive step towards stabilising the economy.

However, the IMF emphasised the urgent need for Nigeria to address the financial implications of fuel and electricity subsidies. The Fund suggested that before tackling these costly subsidies, the recently approved social safety net program must be fully implemented to protect low-income households effectively.

The IMF also applauded the decision of the Monetary Policy Committee (MPC) to tighten monetary policy further by increasing the policy rate by 400 basis points to 22.75%.

This move, aimed at containing inflation, which had hit 29.9% year-on-year in January 2024, and alleviating pressure on the naira, represents a total tightening of 1,025 basis points since May 2022.

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