IMF Loan: Nigerians to Pay Higher Power Tariffs in 2021

• IMF Loan: Nigerians to Pay Higher Power Tariffs in 2021

One of the reasons the International Monetary Fund (IMF) borrowed Nigeria $3.4 billion recently was the Federal Government’s promise to raise electricity tariffs in 2021.

In a Letter of Intent signed by both the Finance Minister, Zainab Ahmed and the Governor of Central Bank of Nigeria, Godwin Emefiele, and addressed to the IMF Managing Director, Kristalina Georgieva, the Federal Government promised to up revenue generation in line with the Fund’s recent criticism of President Muhammadu Buhari’s administration.

One of the areas the government promised to increase revenue generation was the power sector, the government said Nigerians would start paying full cost-reflective tariff for power in 2021.

The Federal Government also told the Fund it plans to reduce the shortfalls in the sector to N380 billion this year.

“We are also advancing in our power sector reforms – with technical assistance and financial support from the World Bank – including through capping electricity tariff shortfalls this year to N380bn and moving to full cost-reflective tariffs in 2021,” the Federal Government said in the letter.

It should be recalled that the IMF, under the leadership of Christine Lagarde, had insisted in 2019 that the Federal Government up revenue to GDP by removing fuel subsidy and increasing tax.

The former IMF boss said: “I would add as a footnote as far as Nigeria is concerned that, with the low revenue mobilisation that exists in the country in terms of tax to GDP, Nigeria is amongst the lowest. A real effort has to be done in order to maintain a good public finance situation for the country. And in order to direct investment towards health, education, and infrastructure.”

She added that “If that was to happen, then there would be more public spending available to build hospitals, to build roads, to build schools, and to support education and health for the people.”

While the Federal Government had refused the Fund suggestions in 2019, the COVID-19 pandemic has now forced the federal government to accede to the Fund’s demand to compound the economic burden on Nigerian people post-COVID-19.

Also, in the Letter of Intent, the federal government suggested it might increase Value Added Tax in order to up tax to GDP ratio from 6 percent to 15 percent.

Other planned revenue improvements include the increase of excise fees and the removal of tax exemptions.

“First and foremost, we will revert to our government’s planned medium-term fiscal consolidation path – which includes increasing revenue to 15 per cent of GDP through further VAT reforms, rise in excises, and removal of tax exemptions – once the crisis passes,” the letter said.