IMF calls for removal of subsidies in Nigeria

The International Monetary Fund (IMF) has reiterated its call for Nigeria to remove regressive fuel and electricity subsidies, adopt tax administration reforms, and implement a fully unified market-clearing exchange rate to spur economic growth. Ari Eisen, the IMF Resident Representative in Nigeria, discussed the key findings of the 2021 Article IV Staff Mission Statement in an exclusive interview with CNBC Africa. Eisen highlighted the need for urgent reforms to address Nigeria's lackluster growth trajectory despite signs of economic recovery post-pandemic. The IMF's forecast of 2.6% growth this year is considered a positive shift from the previous year's contraction, but Eisen stressed that sustained higher growth levels require comprehensive reforms. The interview shed light on three critical areas of focus for Nigeria's economic development, including the removal of subsidies, social inclusiveness, and FX market unification. The IMF commended the Nigerian government for its decision to phase out fuel and electricity subsidies, emphasizing the need for a social compact to cushion the impact on vulnerable populations. Eisen underscored the importance of aligning fiscal prudence with social protection measures to ensure a sustainable subsidy removal process. The IMF called for a collaborative effort across all levels of government and stakeholders to achieve a consensus on subsidy reforms. In response to concerns about the fiscal implications of subsidy removal, Eisen highlighted the reallocation of resources within the budget as a strategic approach to prioritize the most vulnerable segments of society. The interview also addressed the FX market dynamics in Nigeria, with the IMF advocating for a fully unified market-clearing exchange rate. Eisen acknowledged the progress made by the Central Bank of Nigeria in streamlining exchange rate windows but stressed the need for further flexibilization to reflect market demand and supply dynamics. He emphasized the importance of setting an exchange rate that clears the market to avoid shortages and ensure adequate foreign exchange supply. The IMF cautioned against administrative measures as a long-term solution and called for an exchange rate adjustment backed by supportive monetary and fiscal policies to mitigate inflationary risks. Eisen concluded the interview by expressing confidence in Nigeria's ability to navigate these reforms effectively and urged prompt action to foster sustained economic progress.