In its report titled ‘Nigeria: 2024 Article IV Consultation,’ the IMF announced the initiation of a social transfer scheme aimed at curbing the country’s inflation. Nigeria’s inflation rate surged to 33.20 percent in March 2024, up from 31.70 percent in February, amidst ongoing economic hardships faced by Nigerians.
The Bretton Woods Institution revealed that approximately 15 million households or 60 million Nigerians stand to benefit from an improved social intervention scheme, developed in collaboration with the World Bank. The IMF noted, “The authorities have recently approved an enhanced social transfer mechanism developed with World Bank support, and some initial payments have been made.”
Addressing governance concerns, the authorities have automated and digitalized the system to ensure swift and targeted support to vulnerable households. The IMF emphasized the need to scale up the safety net and address implicit fuel and electricity subsidies once inflation subsides.
Highlighting the inefficiency of these subsidies, the IMF cautioned that they disproportionately benefit higher-income groups rather than vulnerable ones. The IMF projected that subsidy costs could rise to three percent of GDP in 2024, up from one percent in 2023, with pump prices and tariffs below cost-recovery.
This development comes amid lingering challenges following the removal of fuel subsidy since President Bola Tinubu’s inauguration in May 2023. Additionally, the Nigerian Electricity Regulatory Commission (NERC) approved an increase in electricity tariff for Band A customers to N225 per kilowatt-hour (kwh) in April, later reduced by electricity distribution companies (DisCos) to N206.80 per kwh.
However, the IMF criticized these subsidies, attributing them to an increase in the budget deficit. The federal government had projected a N9 trillion budget deficit for the year, driven by factors such as lower oil and gas revenue projections, the continued suspension of excise measures, and higher interest costs.
The IMF projected a deficit of 4.7 percent of GDP for the consolidated government in 2024, compared to 4.8 percent in 2023, taking into account the significant social needs and a realistic pace of revenue mobilization. Over the medium term, the IMF anticipates consolidation in the non-oil primary deficit, leading to stabilization of government debt towards the end of the projection period.