Return of fuel, electricity subsidies will widen 2024 budget deficit – IMF

THE  International Monetary Fund (IMF) has warned that Nigeria’s 2024 budget deficit would widen beyond the projected figure due to the restoration of fuel and electricity subsidy payments and increased interest costs on debt.

This is contained in the IMF’s Staff report on Nigeria, where it stated that the suspension of excise duties in the Medium Term Expenditure Framework (MTEF) and lower revenues from oil and gas sales were part of the drivers of the projected increase in the budget deficit.

The report noted that the federal government would require a supplementary budget to meet its plans for a minimum wage increase later in the year which would most likely exceed the figure projected in the 2024 budget.

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Nigeria currently struggles with meeting its Organisation of Oil Exporting Countries (OPEC) quota of 1.7 million barrels per day due to oil theft, which would affect its budget funding and further widen the budget deficit financing.

In addition, the implicit return of oil subsidy will cost Africa’s largest crude producer an estimated 8.43 trillion naira ($5.9 billion) of its projected 17.7 trillion naira of oil revenue, the IMF said in the the report.

The deficit is expected to widen as the federal government in the 2024 appropriation projected a budget deficit of N9.18 trillion, representing a 33.5 per cent decline in the fiscal deficit compared with the N13.78 trillion recorded in 2023.

Contrary to previous years, the federal government did not make any appropriation for fuel subsidies in 2024, however, the subsidy has been returned without appropriation.

“Fuel subsidies were reformed in June 2023, however, adequate compensatory measures for the poor were not scaled up promptly and subsequently paused over corruption concerns,” the IMF said in the report.

It added, “Staff projects a higher fiscal deficit than anticipated in the 2024 budget, but broadly unchanged from 2023. The drivers are (i) lower oil/gas revenue projections, reflecting IMF oil price forecasts but incorporating recent production gains; (ii) higher implicit fuel and electricity subsidies; (iii) continued suspension of excise measures included in the MTEF; and (iv) higher interest costs.



    “In addition, the authorities noted that a supplementary budget may be needed to accommodate the outcome of the ongoing wage structure negotiations which may exceed what they had included in the 2024 budget.”

    Furthermore, based on past results, the IMF projected capital spending to be lower than planned, leading to a projected federal government deficit of 4.5 per cent of GDP in 2024, compared to the budget target of 3.4 per cent of GDP.

    Beyond that, the federal government partly returned to cost-reflective pricing for electricity tariffs in April with the over 200 per cent hike in electricity tariff for Band A customers who comprise about 15 per cent of the total electricity customers across the country.

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    The IMF had earlier warned that non-cost reflective prices in electricity tariffs and fuel could cost Nigeria around three per cent of the Gross Domestic Product (GDP) in 2024.

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    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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