The President Bola Tinubu-led federal government maybe struggling to navigate the International Monetary Fund (IMF) prescription removal of subsidies on petrol and power, and moved the economy towards a path of sustainable growth.
While financial experts have commended the government’s efforts in halting the slide of the Naira without resorting to international creditors, they believe the government is adopting policies recommended by the IMF, which could prove politically difficult to fully implement.
So far, the government has only succeeded in implementing partial removals of the subsidies in both the oil and power sectors, a far cry from the recommendations of international creditors.
At least one analyst is of the view that the government is failing to adopt simple solutions that could help the country save billions in foreign currency by cutting down on the importation of petroleum products.
Founder and chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, believes the IMF approach to economic policy formulation does not take into account the social consequences of an economic policy in a country like Nigeria.
According to Yusuf, on the face of it, it may look good to be talking about subsidy removal on electricity, but we need to put these policy choices within the context of the social and political conditions.
“Already, there is a lot of pressure on the citizens. There is a lot of pressure on businesses. The poverty situation is getting worse. The cost of production is already extremely high. So, if we are dealing with that kind of situation, this is not an appropriate time to be talking about withdrawal of any form of subsidy for now,” he said.
On subsidy removal in the petroleum sector, he said, evidently, the currency depreciation has partially eroded the subsidy savings.
This is because the cost of fuel importation has increased, when converted to naira.
Besides, the mounting inflationary pressures has inherently increased the subsidy because the pump price had remained fixed while the landing cost has been on the rise.
This is understandable in the light of the current hardships being experienced by the citizens.
Though, he said, government is unlikely to go back to full subsidy because doing so would amount to a complete reversal of a major pillar of the current reforms. Beside, he said, government does not have the fiscal space to ensure full restoration of subsidy.
“The objective of the reform is actually to exit completely from fuel subsidy regime but this will take some time as the economic fundamentals are still weak.
“One of the biggest burdens on the Nigerian economy is the importation of petroleum products. Over $10 billion is spent annually on fuel importation. This is in addition to the numerous missed opportunities in quality jobs and other multiplier effects inherent in domestic refining of petroleum products.
“As an oil producing country, committing billions of hard currency to fuel importation is our biggest economic tragedy. One can only hope that we get it right with the present administration,” Yusuf added.
Yusuf said there is a major funding and liquidity crisis which is posing significant risk to investments in the electricity value chain and that costs across the chain have been rising as a result of the multiple macroeconomic headwinds.
As of December 31, 2023, Nigeria’s total debt stood at N97.34 trillion or $108.229 billion of which N59.12 trillion, or $62.73 billion, is domestic obligation.
Total external debt stood at N38.22 trillion, or $42.49 billion. Of this figure, Nigeria’s exposure to the IMF stands at $2.469 billion as of December 31, 2023 according to data from the Debt Management Office (DMO).
Internal rating agencies have so far rated the Nigerian government either stable or positive. Fitch had in November last year issued a B- with a stable outlook while Moody’s Investor Service and S&P had issued Caa1 with Positive outlook and B-/B with Stable outlook in February this year.
The federal government had in June, 2023 announced the removal of fuel subsidy, while recently, it has made a move to remove power subsidy as well, policies that align with the dictates of the World Bank and the International Monetary Fund (IMF).
The executive board of the IMF had on January 12, 2024, in Washington DC, concluded the Post Financing Assessment (PFA) with Nigeria during which it endorsed the Staff Appraisal on a lapse-of-time basis.
The IMF, thus, urged the federal government to fully eliminate subsidies for petrol and electricity, stating that these financial supports were not only expensive but also ineffective in benefiting the populations most in need of assistance.
By phasing out these subsidies, it said, the government would allow fuel and electricity prices to align more closely with their true market value, potentially leading to increased costs for consumers.
The Bank also acknowledged the reforms currently embarked on by the current administration such as the unification of the exchange rate.
Eyeing more structural reforms, President Tinubu had also appointed a Presidential Fiscal Policy and Tax Reforms Committee to make proposals for raising domestic revenue to support investments in infrastructure, health, and education.
On fuel and electricity subsidies, the IMF stated that the government had decided to partially reverse fuel subsidy removal by capping retail prices and electricity prices respectively, as a way to slow down inflation. It also cited the government’s decision to suspend VAT on diesel as another inflation reduction move.
However, in its assessment, the IMF opined that the fuel and electricity subsidies need to be removed to allow market forces to determine the prices. Instead, it recommended that the government focus on revenue generation and digitisation of public service delivery as a strategy for reducing fiscal deficits.
The IMF further asserted that the government’s focus on revenue mobilisation and digitisation would improve public service delivery and safeguard fiscal sustainability, even as the envisaged reduction in the overall deficit in 2024 would help contain debt vulnerabilities and eliminate the need for CBN financing.
Based on these recommendations, the IMF suggested that electricity and fuel subsidies be phased out completely.
Despite these recommendations from the IMF, experts said implementing such reforms demands a considerable degree of political determination from the government to persuade the Nigerian populace that these adjustments are implemented with a degree of compassion and consideration for the economic challenges many are currently enduring.
Just last week, the government slammed a 240 per cent increase in electricity tariff for a certain category of consumers amidst poor supply which has drawn the ire of the public.
Since the onset of the Tinubu administration, the economic landscape has witnessed significant shifts, exemplified by petrol prices tripling and the exchange rate depreciating by over 50 per cent.
These stark realities underline the necessity for the government to ensure that the proposed reforms, particularly, those involving subsidy removals, are perceived as having a “human face” to mitigate the impact on citizens already grappling with economic difficulties.
However, there had been public outcry and reactions condemning the IMF economic restructuring position in Nigeria.
The Nigeria Labour Congress (NLC) had expressed opposition to the advice of the IMF for Nigeria to phase out electricity subsidy.
The labour centre advised President Bola Tinubu not to take such advice from IMF and the World Bank, describing them as anti-people forces.
The NLC accused the IMF and the World Bank of pushing Nigeria to the edge of economic collapse by making such demands, especially, at a time when the country is still reeling from the trauma and confusion of the extant adjustments in electricity tariffs and exchange rates.
The NLC argued that higher electricity tariffs would hurt the competitiveness of the Nigerian manufacturing sector, which is already struggling with low productivity, high costs, and poor infrastructure.
NLC’s head of information and public affairs, Comrade Benson Upah, also queried the logic of devaluing the Naira, which he said would only increase the burden of foreign debt servicing and fuel inflation.
The NLC further criticised both IMF and the World Bank for being hypocritical and insensitive, as they never consider the impact of their policies on the welfare of the Nigerian workers and the masses. The labour centre pointed out that there is a clear link between the purchasing power of the people and their ability to pay for electricity and other essential services.
FG To Redirect Electricity Subsidy Savings To Social Services
Minister of Information and National Orientation, Mohammed Idris, has said that the over N1 trillion that would be saved from the withdrawal of electricity subsidy will be reinvested in improving power supply and the provision of social services for the country.
Idris stated this in Kaduna on Saturday as a guest of the popular Hausa audience participatory programme of Radio Nigeria Kaduna called “Hannu Da Yawa.”
He said the disproportionate amount of electricity subsidy, approximately 40%, is benefiting only about 15% of the electricity consumer population, comprising affluent individuals and industrial clusters, who enjoy about 20 hours of electricity.
“It is essential to emphasize that the funds to be saved from the withdrawal of electricity subsidy will be reinvested in enhancing power supply across the country and improving other vital social services such as health and education,” he said.
Idris emphasized that 85% of the population who falls under the different categorizations of the new electricity supply regime still enjoys the subsidy.
The minister said the new Electricity Act, signed by President Tinubu, has strengthened the governance structure of the Nigerian Electricity Regulatory Commission (NERC), and empowers the commission to place severe sanctions on electricity distribution companies for infractions relating to billings and supply of electricity to consumers.
While speaking on the post-fuel subsidy intervention programmes, Idris said the supply of N100 billion worth of CNG buses is still on track as the specification of the buses is not bought off the shelf.
The Minister said the government would soon launch CNG conversion centres across the country to encourage Nigerians to convert their vehicles from fuel consumption to CNG to reduce the cost of transportation.
Idris also stated that the committee set up by the President to review the operational mechanism of the National Social Investment Programme has submitted its report to pave the way for the resumption of the programmes, which will be providing N25,000 Conditional Cash Transfers to 15 million poor and vulnerable households for three months among other interventions.
The Minister used the platform to dispel the notion in some quarters that the Tinubu Administration is out to shortchange the northern part of the country, stressing that the Federal Government would continue to invest funds in the development of projects in the north.
On agriculture, the minister said the federal government has expanded the cultivation of wheat, rice, cassava, and maize, under the Dry Season Farming Initiative, on about 500,000 hectares of farmland.
“The President has mandated us to go out and feel the pulse of the nation and report back to him. We were in Dutse, Auyo, and Hadejia and interacted with the farmers about the successes of the dry season farming in those areas,” he said.
Idris expressed delight that Kebbi State is now a hub of tomato farming and processing in the country through collaboration with a leading food processing firm, GB Foods, which has set up a sprawling factory for the production of tomato paste.
He said plenty of farmers, mostly women are now involved in tomato farming in Kebbi State because of the enabling environment and support from the off-taker, GB Foods, which has shown a remarkable commitment to doing business in Nigeria.