IMF worry over Nigeria fuel subsidy
The International Monetary Fund (IMF) team says Nigeria’s return of fuel subsidies in the midst of low revenue mobilisation by the country is clearly disturbing.
Rather, the private sector arm of the...
The International Monetary Fund (IMF) team says Nigeria’s return of fuel subsidies in the midst of low revenue mobilisation by the country is clearly disturbing.
Rather, the private sector arm of the World Bank stressed the benefits of introducing a “market-based fuel pricing mechanism and deploy well-targeted social support to cushion any impact on the poor”.
The IMF in its End-of-Mission statement from its headquarters in Washington, DC, USA, on preliminary findings following virtual meetings by its staff teams with the Nigerian authorities from June 1 to 8, recommended Nigeria stepping up efforts to strengthen its tax administration to mobilise additional revenues and help address priority spending pressures.
Led by Jesmine Rahman, the IMF team deliberated Nigeria’s recent economic, financial developments and outlook; and noted that though the real Gross Domestic Product (GDP) was recovering, but unemployment and inflation remained elevated.
It noted that Nigeria’s economy was gradually recovering from the negative effects of the COVID-19 pandemic. And that recent exchange rate measures were encouraging and further reforms were needed to achieve a fully unified and market-clearing exchange rate.
The IMF report said the incipient recovery in economic activity in Nigeria was projected to take root and broaden among sectors, with GDP growth expected to reach 2.5 per cent in 2021.
But it said inflation was expected to remain elevated in 2021, but likely to decelerate in the second half of the year to reach about 15.5 per cent, following the removal of border controls and the elimination of base effects from elevated food price levels.
“The Nigerian economy has started to gradually recover from the negative effects of the COVID-19 global pandemic. Following sharp output contractions in the second and third quarters, GDP growth turned positive in fourth quarter 2020 and growth reached 0.5 per cent (year-over-year) in first quarter 2021, supported by agriculture and services sectors. Nevertheless, the employment level continues to fall dramatically and, together with other socio-economic indicators, is far below prepandemic levels,” the IMF said.
The World Bank private sector arm said, “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 foreign exchange shortage.
It noted that Nigeria’s tax revenue collections were gradually recovering, but with fuel subsidies resurfacing, additional spending for COVID-19 vaccines, 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 team said.