IMF warns Nigeria’s fuel subsidy may hit N6trn in 2022

. May slide into critical debt service challenges

The International Monetary Fund (IMF) yesterday warned that Nigeria’s spend on fuel subsidy may hit a record N6 trillion by the year-end.

This is even as the Fund expressed worry that many African countries, including Nigeria, risk sliding into critical debt servicing problem unless urgent actions were explored to significantly increase revenue.

IMF’s Resident Representative for Nigeria, Ari Aisen, disclosed this while presenting the latest Sub-Saharan Africa Regional Economic Outlook, in Abuja.

The IMF chief said expressed concern regarding the macro-fiscal stress test it conducted on the country, saying: “I think the biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test. What you observe is the interest payments as a share of revenue and as you see in terms of the baseline from the Federal Government of Nigeria, the revenue of almost 100% is projected by 2026 to be taken by debt service.

“So, the fiscal space or the amount of revenues that will be needed and this is without considering any shock is that most of the revenues of the Federal Government are now in fact 89%, and it will continue if nothing is done on debt servicing.

“It is a reflection of the low revenue of the country. The country needs to mobilise more revenue to be able to have macroeconomic stability. It has become an existential issue for Nigeria.”

Aisen also revealed that Nigeria received a total of $6.8 billion facilities from the IMF following the outbreak of the COVID-19 pandemic in 2020, as well as $3.4 billion in Special Drawing Rights (SDRs) and additional $3.4 billion in loans.

He further regretted that as an oil exporter, Nigeria was not only unable to take advantage of the current global high oil prices to build reserves, but also confronted by low earnings due to the subsidy on petroleum products.

With N500 billion monthly fuel subsidy pay-outs, he noted that the country might end up with a record N6 trillion subsidy at by year-end.

He, however, expressed optimism that subsidy burden will reduce significantly when the Dangote Refinery is completed, thereby limiting products importation.

The country needs to mobilise more revenue to be able to have macroeconomic stability. It has become an existential issue for Nigeria.

African outlook

On the economic outlook for the continent, the IMF identified key priority areas as how to reduce debt vulnerabilities, balance inflation and growth; and manage foreign exchange rate pressures.

Aisen said: “Unrivalled potential for renewable energy and an abundance of minerals, a successful transition offers opportunities for diversification and job creation; ensuring the green transition is also a just transition.”

He also noted that fragile and conflict-affected African countries were at the risk of falling further behind in terms of development, especially now that the world economy was faced with an unprecedented high energy and food prices.

He noted that the Fund had done a lot to help sub-Saharan African countries by making available the $23 billion (SDRs) and planning to re-channel additional $100 billion SDR from developed countries.

According to him, Africa needed $425 billion to recover from the COVID-19 pandemic, and between $30 and $50 billion yearly for climate adaptation and an additional $6-10 billion per annum for commodity import.

He continued: “The war in Europe is hunger in sub-Saharan Africa and Africa. So, I think we should pay very close attention to this issue. Russia and Ukraine are first and the fifth major sources of wheat imports to sub-Saharan Africa.

“So clearly having this conflict is the epicentre of the wheat-producing countries being hurt, which puts, as we said, a big premium on the price of wheat. And it is especially complicated in sub-Saharan Africa where we have 57% of the population on moderate or severe food insecurity. And this is extremely concerning for the IMF because after two years of the pandemic on top of these people already suffering, you have this extra shock affecting the prices of basic food items in an already very vulnerable population is something of great concern to us.”

Leave a Reply

Your email address will not be published. Required fields are marked *

Previous Post

W’Bank urges GSS bonds for Africa’s sustainable investment needs

Next Post

Coca-Cola Foundation awards grant to GBF for waste management

Related Posts