The International Monetary Fund (IMF) has again advised the federal government to completely phase out subsidy on electricity tariff in the country. The advice is contained in its recent Post Financing Assessment (PFA), in which it mapped out the pathways to restructuring the macroeconomic stability of the country. Expectedly, Nigerians have enjoined the President Bola Tinubu administration to reject the IMF advice on electricity subsidy.
However, some days after the IMF suggestion, more fears have emerged that the government may toe the line of the global financial institution. The Minister of Power, Chief Adebayo Adelabu, had, during a press briefing on the issue, argued that the federal government could no longer sustain the electricity subsidy.
While the government’s debt obligations to generation and gas companies had reached N3 trillion, only N450 billion was budgeted for subsidy this year. Therefore, the government needs about N2 trillion in this fiscal year to sustain the subsidy. The minister explained that the only possible way forward would be to move towards a cost-reflective tariff model. Based on the minister’s explanation, it is likely that the government will eventually remove the electricity subsidy, either now or in the future.
The government recently claimed that it owed Generating Companies (GenCos) N1.3trillion and gas companies, $1.3 billion. On February 4, Nigerians witnessed the first grid collapse of the year that resulted in power generation crashing to 59.9MW, the worst in decades, which threw the entire country into darkness. Currently, the power sector is not allowed to charge a cost-reflective tariff due to subsidy paid on electricity by the government.
Considering the biting effects of the removal of fuel subsidy on the citizens and businesses, we urge the government to ignore the IMF advice on electricity subsidy because it is anti-people. It is also insensitive to remove electricity subsidy at a time that Nigerians are grappling with untold economic hardships. Moreover, previous economic recommendations by the global financial institutions impoverished the Nigerian masses and worsened the economy.
As a sovereign nation, Nigeria should decide its economic policies and not take dictation from outside. In this regard, the federal government should prioritise the welfare of the people above everything else. It is worth noting that the IMF advice came on the heels of the recent report that the federal government spent N204.59 billion on electricity subsidy in the third quarter (Q3) of 2023, and plans additional N1.6 trillion this year to enable Nigerians have access to electricity at a low cost.
All over the world, government provides subsidy on essential services, including electricity. Any attempt to remove subsidy on electricity will worsen the economic hardship in the country. Already, the disposable income of most Nigerians is on the downward spiral due to rising inflation. It is unfortunate that the living conditions of Nigerians have deteriorated.
With a recent World Bank report that the federal government has partially re-introduced a measure of fuel subsidy and under-recovery, there are no signs of this impacting on the people. For instance, the IMF said that the recent release of 102,000 metric tonnes of grains by the federal government from the national grain reserves, meant to cushion hardship across the country could be an indication that the government is “reversing the fuel subsidy removal.”
The global financial institutions should not dictate to the federal government. For the subsidy on electricity to have good impact, it must get to the grassroots and the most vulnerable in the society. There is need for government to translate the roadmap on power sector so that the current shortage of power supply will be greatly reduced.
The removal of fuel subsidy and the unification of the exchange rate, all of which came at the behest of the IMF and the World Bank’s recommendations, have not yielded and desired results. Nigeria’s external reserves are still in the decline. Inclusive growth is still far from becoming a reality. Government should check the frequent collapse of the national grid, caused by shortage of gas, ageing equipment and low capacity to evacuate generated power. Let the government build new mini-grids to supply power to remote areas of the country.