The Federal Government has been urged to remove the fuel subsidy, a move the International Monetary Fund (IMF) said could positively improve the country’s slow economic growth.
The Managing Director of IMF, Christine Lagarde, made the recommendation during a press conference on Thursday at the on-going joint annual spring meetings with the World Bank in Washington DC, United States.
Why IMF want fuel subsidy removed: Lagarde said fuel subsidy removal is important due to the low contribution of tax revenue to Gross Domestic Product (GDP). She added that if fuel subsidy is removed, the funds could be diverted to the health, education, and infrastructure.
IMF Executive Board had suggested in its 2019 Article IV Consultation with Nigeria that phasing out implicit fuel subsidies while strengthening social safety nets to mitigate the impact on the most vulnerable would help reduce the poverty gap.
“I will give you the general principle. For various reasons and as a general principle, we believe that removing fossil fuel subsidies is the right way to go. If you look at our numbers from 2015, it is no less than about $5.2tn that is spent on fuel subsidies and the consequences thereof.
“And the Fiscal Affairs Department has actually identified how much would have been saved fiscally but also in terms of human lives, if there had been the right price on carbon emission as of 2015. Numbers are quite staggering.
“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.”
“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.
“Now, how this is done is the more complicated path because there has to be a social protection safety net that is in place, so that the most exposed in the population do not take the brunt of the removal of subsidies principle. So that is the position we take.”
Removal of fuel subsidy is a sensitive issue in Nigeria. It often draws widespread condemnation in the country when the government mulls the decision.