FG agrees with IMF, plans withdrawal of electricity subsidy

FG agrees with IMF, plans withdrawal of electricity subsidy

The federal government has disclosed that it cannot sustain subsidy on electricity in line with the advise of the International Monetary Fund (IMF).

IMF has recently advised President Bola Tinubu-led administration to completely phase out electricity subsidy in the country, despite the hardship Nigerians are facing since the removal of fuel subsidy in May 2023.


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According to its published ‘Post Financing Assessment (PFA)’ report, the IMF said the federal government had overwhelmed itself, thus recommending that the total removal of both fuel and electricity subsidies must be implemented.

The Bretton Woods Institution made this recommendation as the mechanism for Nigeria to restore macroeconomic stability, coming as corroboration to what the government had said late last year that electricity subsidy between January and September 2023 had gulped N375.8 billion, as power consumers paid a total of N782.6bn for the commodity during the same period.

The IMF commended the federal government on the reforms it had implemented so far but reiterated that the fuel and electricity subsidies should be removed.

The global lender said: “The new administration has made a strong start, tackling deep-rooted structural issues in challenging circumstances.

“Immediately, it adopted two policy reforms that its predecessors had shied away from: fuel subsidy removal and the unification of the official exchange rates. Since then, the new CBN team has made price stability its core mandate and demonstrated this resolve by dropping its previous role in development finance.

“On the fiscal side, the authorities are developing an ambitious domestic revenue mobilization agenda. Like many other countries, Nigeria faces a difficult external environment and wide-ranging domestic challenges.
“External financing (market and official) is scarce, and global food prices have surged, reflecting the repercussions of conflict and geo-economic fragmentation.

“Per capita growth in Nigeria has stalled, poverty, and food insecurity are high, exacerbating the cost-of-living crisis.
“Low reserves and very limited fiscal space constrain the authorities’ option space. Against this backdrop, the authorities’ focus on restoring macroeconomic stability and creating conditions for sustained, high and inclusive growth is appropriate.

“The CBN has set out on a welcome path of monetary tightening. The Governor has committed to making price stability the core objective of monetary policy, and the CBN has taken actions to mop up excess liquidity.

“Continuing to raise the monetary policy rate until it is positive in real terms would be an important signal of the direction of monetary policy.”

On the strength of the IMF counsel, the Federal government said it cannot continue to subsidise the power sector.

Disclosing the determination of the federal government to phase out the subsidy, Minister of Power, Adebayo Adelabu, said the measure was borne out of concerns over the poor electricity supply situation in the country caused by numerous issues including outstanding subsidy debts.

Briefing journalists in Abuja on Wednesday, the minister said the nation must begin to move towards a cost-effective tariff model, as the country is currently indebted to the tune of 1.3 trillion naira to generating companies (GenCos) and 1.3 billion dollars owed gas companies.

According to him, over N2 trillion needed for subsidy, only N450 billion was budgeted this year.

He said state governments will now be allowed to generate power independently to supply power to their states.


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