IMF to Nigerian Government: Implement cash transfer programme before addressing fuel, electricity subsidies.

The International Monetary Fund (IMF) stresses the importance of expediting the full implementation of Nigeria’s Cash Transfer Program to support vulnerable households, advising that this should precede any reconsideration of costly fuel and electricity subsidies.

The IMF underscores the necessity of operationalizing the established social Safety Net Program, which aims to provide cash transfers to those in need, to ensure protection for economically vulnerable segments of the population. This strategy is deemed essential as the government contemplates adjustments to the current fuel and electricity subsidy framework.

This recommendation comes amidst concerns expressed by the IMF regarding the fiscal burdens associated with ongoing fuel and electricity subsidies. Following a recent visit led by Axel Schimmelpfennig, the IMF mission chief for Nigeria, the IMF cautioned that sustaining fuel pump prices and electricity tariffs below their recovery costs could result in fiscal costs of up to 3% of Nigeria’s GDP in 2024.

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

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In its statement, the IMF highlighted recent improvements in revenue collection and oil production but underscored Nigeria’s low revenue mobilization, which constrains the government’s ability to respond to shocks and promote long-term development. The Fund projects a GDP growth of 3.2% in 2024, supported by increased oil production and anticipated better harvests, despite challenges such as high inflation and a weakening naira.

Regarding food security and social protection, the IMF commended the Nigerian government’s efforts to address food insecurity and the approval of a targeted Social Safety Net program. However, it emphasized the urgent need to address the financial implications of fuel and electricity subsidies, suggesting that the social safety net program must be fully implemented before tackling these subsidies to protect low-income households effectively.

Additionally, the IMF applauded the Monetary Policy Committee’s decision to tighten monetary policy further to contain inflation and alleviate pressure on the naira.

Insights:

• The elimination of fuel subsidies disproportionately impacts Nigeria’s poor and vulnerable, who could benefit greatly from a monthly cash transfer system.
• Cash transfers can help break intergenerational poverty traps amid inflation and low economic growth, as noted by the World Bank.
• President Bola Tinubu’s social safety net program aims to distribute N25,000 to 15 million households over three months.
• The Federal Ministry of Humanitarian Affairs and Poverty Alleviation is responsible for implementing the $800 million World Bank loan project.
• The cash transfer program faced suspension due to alleged misappropriations, leading to its revamping by the Federal Government to combat fraud through immediate implementation of direct payments.

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