IMF recommends increased social spending as buffer to fuel subsidy removal

The Executive Board of the International Monetary Fund (IMF) has recommended that the Nigerian government should increase well-targeted social spending to cushion the anticipated adverse effects of fuel subsidy removal.

The recommendation is contained in a statement detailing the conclusion of IMF’s just concluded 2022 Article IV Consultation with Nigeria.

According to the IMF, fuel subsidy payments have deprived Nigeria of increasing its oil revenues despite recent global oil price increases. Nigeria plans to finally remove fuel subsidy latest by June 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.

Nigerian Economist Kingsley Moghalu said increased social spending could be one of the positive things that could result from fuel subsidy removal.

In a policy paper he co-authored titled “Nigeria’s poverty trap and how to end it,” the Economist argued that if subsidies were to be removed, the money could be channelled into investments in subsidised public transportation systems in all local government areas in the 36 states and the Federal Capital Territory (FCT). Doing this would help to cushion the impact of subsidy removal on the poor and to help check inflationary trends that could arise from increased transportation costs.

Note that increased social spending will benefit about 133 million Nigerians who are already living in multidimensional poverty.

In the meantime, many Nigerians have continued to express their support for the removal of fuel subsidies in the country. Just earlier this morning, the Head of Investments at Sankore Global Investments, Efosa Aluyi, told Arise TV that fuel subsidy removal is inevitable.

Aside from increased social spending, the IMF also says the government should stay committed to removing the fuel subsidy by the highlighted timeline if the country will increase its oil revenues. The IMF also says that there should be an improvement in transparency and accountability in the oil sector, to enhance growth.