The International Monetary Fund (IMF) has stated that rising inflation and fuel subsidy costs are draining Nigeria’s fiscal revenues, which are primarily earned from taxes, duties, and other sources, especially when the government is not increasing its revenue streams.
Despite signing the long-awaited Petroleum Industry Act (PIA) into law in 2021, President Muhammadu Buhari’s federal government has refused to stop paying subsidies for premium motor spirit (PMS), also known as petrol.
The central government had planned to stop the payments made to make fuel cheaper for consumers by June 30. Still, after organized labour protested, the government said it would remove the subsidy by mid-2023 after the current administration expires.
Trillions of Naira are budgeted to pay for petrol subsidies, which some observers have criticized, pointing out that corrupt officials have used the route to steal public funds.
The IMF said in a statement issued on Friday after its 2022 Article IV Mission in Nigeria that for Nigeria to make progress and address its fiscal revenue issues, it must let go of the subsidy monster, but that crude oil theft must also be investigated to increase earnings from the commodity’s sale.
As a near-term priority, the mission highlighted the urgent need to remove fuel subsidies fully and permanently, which disproportionately benefit the well-off, by mid-2023 as planned.
“The government should also prioritise addressing oil thefts and governance issues in the oil sector to restore production to pre-pandemic levels, the IMF said.
Even though the global price of crude oil is rising, Nigeria is not earning much from the commodity because a significant amount of black gold is stolen.
Mr Mele Kyari, the group CEO of Nigerian National Petroleum Company (NNPC) Limited, recently stated that a 4-kilometre pipeline from the Forcados export terminal had been used to steal oil for nine years, resulting in the theft of hundreds of thousands of barrels of oil per day.
This sparked outrage, but the issue appears to have been swept under the rug after a few weeks, with no update on those found responsible.
In the IMF statement issued today, the government was also advised to take steps to address the country’s rising inflation.
The National Bureau of Statistics (NBS) reported this week that inflation increased by 21.09 percent in October 2022, up from 20.77 percent in September 2022. This was precipitated by rising food and energy prices.
The IMF wonders why food prices are rising despite Nigeria having limited direct exposure to the war in Ukraine by Russia, warning that “high food insecurity is compounding the pandemic’s scarring effects on the vulnerable.”
However, it said “headline inflation is expected to moderate at end-2022 as the start of the harvest season more than counters the projected increase in rice prices caused by recent flooding.”
