In the midst of the agonizing hardship experienced by Nigerians, the Federal Government has been urged by the International Monetary Fund (IMF) to fully eliminate fuel and electricity subsidies. According to the IMF, these subsidies fail to benefit those who truly require government assistance. Yet, the IMF recognized the necessity of providing temporary and focused aid, such as social transfers, to the most economically vulnerable individuals to ease the prevailing high cost-of-living crisis. It said the expenses incurred in fuel and electricity subsidies are exorbitant, fail to extend assistance to the people who require it the most, and should be entirely eliminated.
President Bola Tinubu, as stated by the IMF, has embarked on significant changes aimed at restructuring the system. These changes involve the elimination of fuel subsidies, consolidation of diverse official foreign exchange windows, and the formation of a committee called the Presidential Fiscal Policy and Tax Reforms Committee. This committee’s primary objective is to put forth suggestions for boosting internal revenue in order to foster investments in infrastructure, health, and education. It observed that the government has taken various measures to mitigate the adverse effects of inflation on people’s lives.
Insufficient revenue generation impedes public investment.
These include releasing cereals from the grain reserve, offering subsidized fertilizer to farmers, setting limits on retail fuel and electricity prices as a partial reversal of fuel subsidy removal, introducing a wage award for civil service employees, and temporarily halting the VAT on diesel. The IMF also stated that insufficient revenue generation impedes the delivery of services and public investment, while persistent security issues in the northern region negatively impact agriculture and food security in the country.
According to the IMF, Nigeria’s economy is expected to experience a 3 percent growth in 2024 due to the revival of hydrocarbon performance, which includes better control over theft. The IMF acknowledged that if the authorities can successfully develop and implement a comprehensive reform agenda, the medium-term outlook would be significantly more favourable. Despite facing challenging circumstances, the new administration has made a promising beginning by addressing long standing structural problems, as assessed by the IMF Executive Board. Without hesitation, the current governing body embraced two pivotal changes in policy that their predecessors had evaded: the elimination of fuel subsidies and the consolidation of official exchange rates.
Authorities are formulating an ambitious strategy.
Following that, the new CBN team has placed price stability as its main objective and underscored their determination by shifting from their former responsibility in development finance, IMF noted. In terms of fiscal matters, the authorities are formulating an ambitious strategy to enhance domestic revenue generation. Similar to numerous other nations, Nigeria is grappling with a challenging global landscape and numerous domestic hurdles. External funding, whether from the market or through official sources, is in short supply, and as a result of ongoing conflicts and economic divisions across the globe, there has been a notable rise in the prices of food.
Furthermore, Nigeria’s per-capita growth has stalled, resulting in high levels of poverty and food insecurity, exacerbating the already pressing cost-of-living issue. Economic limitations like low reserves and restricted fiscal capabilities further restrict the options available to the authorities. Amidst these circumstances, IMF acknowledged the appropriateness of the authorities’ concentration on reinstating macroeconomic stability and establishing an environment conducive to long-lasting, substantial, and equitable growth. The CBN Governor has taken a firm stand towards prioritizing price stability as the central tenet of monetary policy, with the Bank undertaking measures to address the surplus liquidity.
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To send a strong message about the direction of monetary policy, it is crucial to keep increasing the real interest rate until it becomes positive. As the authorities are presently examining alternatives to fortify Nigeria’s reserve position, it is vital to thoroughly evaluate any unforeseen repercussions that may arise in certain scenarios. By resolving the pending dollar liabilities to the Central Bank of Nigeria, confidence in both the national currency and the central bank will be restored. The IMF also expressed optimism that the projected decrease in the overall deficit by 2024 would effectively address potential debt risks and eliminate the requirement for financing from the Central Bank of Nigeria.
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