How Electricity Tariff, Fuel Price Below Cost Recovery will Affect GDP – IMF

According to recommendations from the International Monetary Fund (IMF), Nigeria’s fiscal costs might amount to 3% of GDP if fuel prices and electricity tariffs are capped below cost recovery.

This morning, the Country Office in Abuja released the report of the recently ended Staff Article IV Consultations, which included the warning.

“Capping fuel pump prices and electricity tariffs below cost recovery could have a fiscal cost of up to 3% of GDP in 2024,” the IMF states.

IMF Enlists Nigeria Among Nations With Least Food Security

From February 12–23, 2024, a team led by Axel Schimmelpfennig, the IMF mission chief for Nigeria, travelled to Lagos and Abuja to have talks in preparation for the 2024 Article IV Consultations with Nigeria.

The employees recommended that the federal government put social safety nets through the cash-transfer programme before addressing the fuel subsidies and electricity tariffs below cost recovery.

According to the report, “Recently approved targeted social safety net program that will provide cash transfers to vulnerable households needs to be fully implemented before the government can address costly, implicit fuel and electricity subsidies in a manner that will ensure low-income households are protected.

“Nigeria’s economic outlook is challenging. Economic growth strengthened in the fourth quarter, with GDP growth reaching 2.8 per cent in 2023.

IMF Forecasts 3.2% GDP Growth In Nigeria

“This falls slightly short of population growth dynamics. Improved oil production and an expected better harvest in the second half of the year are positive for 2024 GDP growth, which is projected to reach 3.2 per cent, although high inflation, naira weakness, and policy tightening will provide headwinds.

“With about 8 per cent of Nigerians deemed food insecure, addressing rising food insecurity is the immediate policy priority.

 

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