The International Monetary Fund said on Friday that the Nigerian government is expected to completely remove fuel and electricity subsidies early next year and implement revenue-based fiscal consolidation.
The IMF, in a statement at the end of its 2021 Article IV mission, said that with the emergence of fuel subsidies and slow progress in revenue mobilization, the “fiscal outlook of the countries face significant risks ”.
He said the continued use of administrative measures to deal with persistent currency shortages was having a negative impact on confidence.
According to the Washington-based fund, without urgent tax and exchange rate reforms, the medium-term outlook faces below-average growth.
He stressed the need for major reforms in the areas of taxation, exchange rate, trade and governance to change what he described as “the lackluster long-term growth path”.
He said: “In the immediate term, fiscal and external imbalances require the removal of regressive subsidies for fuel and electricity, reforms of the tax administration and the installation of a balanced exchange rate of the country. fully unified market.
“The complete removal of regressive fuel and electricity subsidies is a short-term priority, combined with adequate compensatory measures for the poor. The mission stressed the need to completely remove fuel subsidies and switch to a market-based pricing mechanism in early 2022, as stipulated in the 2021 Petroleum Industry Law.
The IMF has said the implementation of cost-reflecting electricity tariffs from January 2022 should not be delayed.
He said: “Well-targeted social assistance will be needed to cushion any negative impact on the poor, especially in light of continued high inflation.
“Nigeria’s past experiences with removing fuel subsidies, all of which have been short-lived and reversed, underscore the importance of building consensus and improving public confidence in the protection of the poor and the use efficient and transparent resources saved. ”
According to the IMF, the overall budget deficit is expected to worsen in the short term and remain high in the medium term.
He said: “Despite much higher oil prices, the general government budget deficit is expected to widen in 2021 to 6.3% of GDP, reflecting implicit fuel subsidies and higher security spending, and remain at this level in 2022.
“There are significant downside risks to the near-term fiscal outlook due to the ongoing pandemic, weak security and spending pressures associated with the electoral cycle. ”
The fund said that in the medium term, without bold revenue mobilization efforts, budget deficits could remain high above pre-pandemic levels, with public debt reaching 43% in 2026.
“Government interest payments are expected to remain high as a proportion of income, making the fiscal position highly vulnerable to real interest rate shocks and dependent on central bank funding,” he added.
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