IMF Frets Over Fuel Subsidy Resurgence In Nigeria - NEW TELEGRAPH
BY Tony Chukwunyem
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The International Monetary Fund (IMF) has expressed concern over what it described as “the resurgence of fuel subsidies” in Nigeria. In a statement released yesterday following IMF’s staff virtual meetings with the Nigerian authorities early this month, the Fund “reiterated the importance of introducing market-based fuel pricing mechanism and the need to deploy well-tar geted social support to cushion any impact on the poor.” Citing the increase in global oil prices and the depreciation of the naira against the dollar, the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mele Kyari, had said on March 25, that at the current official PMS price of N162 per litre, the Federal Government was subsidising petrol with between N100billion to N120billion monthly (N3.3billion-N4billion daily).
Although the Federal Government has consistently said that fuel subsidy was no longer sustainable, it is yet to announce a plan for its elimination. According to the IMF, “the resurfacing of fuel subsidies is concerning, particularly in the context of low revenue mobilization.” The Bretton Woods institution stated that although the Nigerian economy had started to gradually recover from the adverse effects of the Covid-19 global pandemic, “the employment level continues to fall dramatically and, together with other socio-economic indicators, far below pre-pandemic levels.” It added: “Inflation slightly decelerated in May but remained elevated at 17.9 per cent, owing to high food price inflation.
With the recovery in oil prices and remittance flows, the strong pressures on the balance of payments have somewhat abated, although imports are rebounding faster than exports and foreign investor appetite remains subdued resulting in continued FX shortage.” The statement, which was issued by the IMF’s mission Chief to Nigeria, Ms. Jesmin Rahman, who led the team during the visit, said that Nigeria’s Gross Domestic Product (GDP) growth was expected to reach 2.5 per cent in 2021, noting that while inflation is expected to remain elevated in 2021, it is likely to decelerate in the second half of the year to reach about 15.5 per cent.
“Tax revenue collections are gradually recovering, but with fuel subsidies resurfacing, additional spending for Covid-19 vaccine, and to address security challenges, the fiscal deficit of the consolidated government is expected to remain elevated at 5.5 per cent of GDP. Downside risks to the near-term arise from further deterioration of security conditions and the still uncertain course of the pandemic both globally and in Nigeria,” the IMF said. Advising the Federal Government to step up efforts to strengthen tax administration to mobilise additional revenue and help address priority spending pressures, the IMF also cautioned the Central Bank of Nigeria (CBN) to ensure that it did not breach extant laws while providing overdrafts for deficit financing. As the IMF put it, “the mission urged the authorities to keep reliance on CBN overdrafts for deficit financing within legal limits, while the government continues to make efforts to strengthen budget planning and public finance management practices to allow for flexible financing from domestic markets and better integration of cash and debt management.”
The Fund also stated that while the CBN’s recent removal of the official exchange rate from its website and adoption of measures to enhance transparency in the setting of the NAFEX exchange rate were “encouraging,” the apex bank should maintain the momentum toward “fully unifying all exchange rate windows and establishing a market-clearing exchange rate.”
It added: “On monetary policy, to strengthen the monetary targeting regime, the mission recommended integrating the interbank and debt markets and using central bank or government bills of short maturity as the main liquidity management tool, instead of the cash reserve requirements.”