Mounting subsidy payment will hamper Nigeria's economic growth, IMF warns
IMF building

The International Monetary Fund (IMF) has warned that Nigeria’s growing subsidy bill will continue to constitute serious hindrance to the country’s economic growth.

Despite spending an estimated $9.8billion on petrol subsidy in 2021 with the expectation that Nigeria would spend higher in 2023, there are still fears the economy may continue to struggle.

This was a focal issue on Wednesday at the on-going IMF/World Bank meeting in Washington D C, USA.

 

Divisional Chief, Fiscal Affairs Department, IMF, Paulo Medas said at a briefing on the World Economic Outlook (WEO) at the on-going 2022 IMF/World Bank annual meetings in Washington D C, USA, that the ballooning spending on subsidy was still discomforting Nigeria’s economic prospects.

Medas said that the country which had benefitted from higher oil revenues should have saved up resources in her interest.

Medas also noted the low tax revenue in Nigeria was hampering the government’s ability to forestall the dangers of shocks and other pressures on the budget.

‘’In Nigeria has benefited from higher oil revenues. We haven’t seen an improvement in the deficits as we hoped. This is partly because of the large energy subsidies, but also other issues with the production of oil and other pressures on the budget,” he said.

‘’So, our recommendation is to try to save some of these oil revenues but also address these emergency needs. Another aspect I would say is that Nigeria is one case where tax revenues are really low and this really undermines the capacity of the government to mark these types of shocks and.to provide key services.”

Meda who noted that governments all over the world were facing very difficult times ranging from double digit inflation, explained that a combination of fiscal policy needs and monetary policies were necessary to achieve and ensure price stability.

‘’This is absolutely critical for stable growth and for some public finances in the countries. Countries like Nigeria especially that are oil exporters can take advantage of rising commodity revenues to address some of these needs and to reduce debt,” he noted.

He said Nigeria should prioritize domestic revenue mobilization to increase capacity to address the needs of the country and ensure economic stability.

Minister of Finance, Zainab Ahmed, had said that Nigeria could spend up to 6.72 trillion naira ($16.2 billion) next year if it keeps a fuel subsidy in place, an estimated 70% jump from this year’s budget.

Nigeria’s parliament had in April approved a 4 trillion naira petrol subsidy for the year 2022 after President Muhammadu Buhari asked for additional funds to offset higher global oil prices driven by the conflict in Ukraine.

Ahmed had revealed that the federal government was working with two scenarios, first that assumed a “business-as-usual” approach where a subsidy would be in place throughout 2023 and would cost 6.72 trillion naira.

Second was to “assumes that petrol subsidy will remain up to mid-2023…, in which case only 3.36 trillion (naira) will be provided for,” during a pre-2023 budget consultation in the federal capital Abuja.

 

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