The International Monetary Fund recently advised the Nigerian government on the steps to take, to mitigate what appears to be an impending economic crisis.
The advice was given in a statement summarizing the IMF's recently ended 2022 Article IV Consultation with Nigeria.
The International Monetary Fund (IMF) Executive Board began by suggesting that the Nigerian government enhance well-targeted social expenditure to mitigate the expected negative consequences of the elimination of gasoline subsidies.
This advice is based on the fact that the Nigerian government has disclosed that fuel subsidies in the country would be removed sometime this year. The country is already dealing with a scarcity of fuel, which has inadvertently created a hike in fuel prices.
Experts have warned of worse, predicting that if the subsidy should be removed, fuel prices could shoot as high as N1000/liter, as opposed to its current 206.190/liter. Read the story here.
According to the IMF, despite recent global oil price hikes, fuel subsidy payments have prevented Nigeria from boosting its oil profits. Nigeria intends to phase off gasoline subsidies by June of this year.
“Directors highlighted the need for bold fiscal reforms to create needed policy space, put public debt on sound footing, and reduce vulnerabilities. They urged the authorities to deliver on their commitment to remove fuel subsidies by mid-2023, and to increase well-targeted social spending,” the IMF said.
Regardless of the IMF’s warnings, the organization encouraged the Nigerian government to stick to its plan of removing the fuel subsidy by the highlighted timeline if the country will increase its oil revenues. For this to yield the possible best result, the IMF also advised that there should be an improvement in transparency and accountability in the oil sector.
The IMF mentioned some of the major issues that the Nigerian economy may face this year. According to the IMF, Nigerians would experience high inflation, expensive debt payments, external sector pressures, and instability in the oil sector, reduced oil revenues, since oil prices remain relatively low.
Furthermore, the IMF failed to adjust Nigeria's inflation forecast, maintaining that the country's economic growth would decline by 3% in the fiscal year 2023.