IMF denies influencing Nigeria’s fuel subsidy removal, currency floatation

The International Monetary Fund (IMF) has denied influencing the Nigerian government into removing the contentious fuel subsidy and floating the naira.

The Bretton Wood institution declared that though it supported the moves, the policies were purely domestic choices.

President Bola Tinubu on May 29 last year announced an end to fuel subsidy regime and capped it off with the liberalisation of the foreign exchange (FX) market.

Both policies have been identified by many as the causes of the current economic hardship in the country with a double-digit inflation rate of more than 30 percent, and petrol prices surging by over 60 percent from 2023 — amid a weak currency.

The IMF has come under attacks from analysts and economic experts following insinuations it influenced both decisions.

The Director of African Development at the IMF, Aemro Selassie, while speaking at a press briefing in Washington DC agreed that the policies had brought untold hardships to many, but affirmed that they were both domestic and political choices to be made.

He said: “We express our thoughts on what would be a better use of public resources and I think over the years, what Nigeria has been thirsting for is a lot of investment in infrastructure. A lot of investment that’s required in health, education and the like.

“Those have been our strong views expressed in Nigeria as continued sustaining subsidies for fuel and other areas.

“At the end of the day, these are deeply domestic and deeply political choices that governments have to make.

“They have made choices that we think move in the direction of better use of public resources, in a way that will unlock this incredible potential that the economy has to make it more dynamic, to invest, to facilitate growth and we welcome those reforms.”

On the effect of subsidies, the IMF official explained that when subsidies were significant and the exchange rate was being kept at an artificial level, there were other imbalances in the economy — including high levels of inflation and shrinking reserves.

“Government’s ability to borrow from markets was heavily compromised and this was the really difficult trade-off that the government in Nigeria over recent years have faced.

“The inability to have a healthy macroeconomic situation, one that would foster growth, diversification, resources to invest in health and education that were needed, because so much resources were being used by fuel subsidies. It wasn’t sustainable, ” he stated.

He charged the Nigerian government to direct the savings from petrol subsidy removal to support vulnerable households amid the country’s economic hardship.

The economist noted that the effect of food price shocks in recent years has been acute in sub-Saharan Africa.

“Food accounts for a higher share of the consumption basket. Now you have fuel prices going up, which will have an additional effect on other essential goods. So, all of this is well recognised,” he said.

“It is also why we have been on record again and again and again about the need to put in place measures to target the most vulnerable and do social protection over the years as these reforms have been implemented.

“I know there are some steps that are being taken in that direction, but I think some of the savings from the fuel subsidy reform, the exchange rate subsidy being removed, should, in our view, be directed to cushion the effect on the most vulnerable households, ” Selassie concluded.

By: Babajide Okeowo

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