In a recent report titled “Nigeria: 2024 Article IV Consultation,” the International Monetary Fund (IMF) has advised the Nigerian government to terminate all forms of fuel and electricity subsidies, arguing that they predominantly benefit the wealthy rather than the intended vulnerable population.

The IMF’s recommendation comes amidst Nigeria’s struggle with record-high inflation and economic challenges exacerbated by the COVID-19 pandemic.

The report highlights the inefficiency and ineffectiveness of subsidies, noting that they are costly and poorly targeted.

According to the IMF, higher-income groups tend to benefit more from these subsidies, resulting in a misallocation of resources. With pump prices and electricity tariffs currently below cost-recovery levels, subsidy costs are projected to increase significantly, reaching up to three percent of the gross domestic product (GDP) in 2024.

The IMF suggests that once Nigeria’s social protection schemes are enhanced and inflation is brought under control, subsidies should be phased out.

The government’s social intervention scheme, developed with support from the World Bank, aims to provide targeted support to vulnerable households, potentially benefiting around 15 million households or 60 million Nigerians.

However, concerns persist regarding the removal of subsidies, particularly in light of the recent announcement of an increase in electricity tariffs by the Nigerian Electricity Regulatory Commission (NERC).

While the government has taken steps to reduce subsidies, including the removal of the costly petrol subsidy, there are lingering challenges in fully implementing these reforms.

Nigeria’s fiscal deficit is projected to be higher than anticipated, according to the IMF staff’s analysis.

The persistence of fuel and electricity subsidies is expected to contribute to this fiscal imbalance, along with lower oil and gas revenue projections and higher interest costs.

The International Monetary Fund (IMF) has said Nigeria’s growth prospects will barely exceed its population expansion despite recent economic reforms.

Axel Schimmelpfennig, the IMF’s mission chief to Nigeria, who explained the risks to the nation’s economic outlook during a virtual briefing, acknowledged the strides made in implementing tough economic reforms but stressed that significant challenges persist.

The IMF reaffirmed its forecast of 3.3% economic growth for Nigeria in the current year, slightly up from 2.9% in 2023.

However, Schimmelpfennig revealed that this growth rate merely surpasses population dynamics and signaled a need for accelerated progress to enhance living standards significantly.

While Nigeria has received commendation for measures such as abolishing fuel subsidies and reforming the foreign-exchange regime under President Bola Tinubu’s administration, these reforms have not come without costs.

The drastic depreciation of the naira by 65% has fueled inflation to its highest level in nearly three decades, exacerbating the cost of living for many Nigerians.

The IMF anticipates a moderation of Nigeria’s annual inflation rate to 24% by the year’s end, down from the current 33.2% recorded in March.

However, the organization cautioned that substantial challenges persist, particularly in addressing acute food insecurity affecting millions of Nigerians with up to 19 million categorized as food insecure and a poverty rate of 46% in 2023.

Moreover, the IMF emphasized the importance of maintaining a tight monetary policy stance to curb inflation, preserve exchange rate flexibility, and bolster reserves.

It raised concerns about proposed amendments to the law governing the central bank, fearing that such changes could undermine its autonomy and weaken the institutional framework.

Looking ahead, Nigeria faces several risks, including potential shocks to agriculture and global food prices, which could exacerbate food insecurity.

Also, any decline in oil production would not only impact economic growth but also strain government finances, trade, and inflationary pressures.

The World Bank has said Nigeria’s conditional cash transfer scheme aimed at bolstering household consumption and financial inclusion is largely ineffective.

Despite significant investment and efforts by the Nigerian government, the program has shown minimal impact on the lives of its beneficiaries.

Launched in collaboration with the World Bank in 2016, the cash transfer initiative was designed to provide financial support to vulnerable Nigerians as part of the National Social Safety Nets Project.

However, the latest findings suggest that the program has fallen short of its intended goals.

The World Bank’s research revealed that the cash transfer scheme had little effect on household consumption, financial inclusion, or employment among beneficiaries.

Also, the program’s impact on women’s employment was noted to be minimal, highlighting systemic challenges in achieving gender parity in economic opportunities.

Despite funding a significant portion of the cash transfer program, the World Bank found no statistical evidence to support claims of improved financial inclusion or household consumption.

The report underscored the need for complementary interventions to generate sustainable improvements in households’ self-sufficiency.

According to the document, while there were some positive outcomes associated with the cash transfer program, such as increased household savings and food security, its overall impact remained limited.

Beneficiary households reported improvements in decision-making autonomy and freedom of movement but failed to see substantial gains in key economic indicators.

The findings come amid ongoing scrutiny of Nigeria’s social intervention programs, with concerns raised about transparency, accountability, and effectiveness.

The cash transfer scheme, once hailed as a critical tool in poverty alleviation, now faces renewed scrutiny as stakeholders call for comprehensive reforms to address its shortcomings.

In response to the World Bank’s report, government officials have emphasized their commitment to enhancing social safety nets and improving the effectiveness of cash transfer programs.

Minister of Finance and Coordinating Minister of the Economy, Wale Edun, reaffirmed the government’s intention to restart social intervention programs soon, following the completion of beneficiary verification processes.

As Nigeria grapples with economic challenges exacerbated by the COVID-19 pandemic and other structural issues, the need for impactful social welfare initiatives has become increasingly urgent.

The World Bank’s assessment underscores the importance of evidence-based policy-making and targeted interventions to address poverty and inequality in the country.