During a recent media briefing at the World Bank/IMF Annual Meetings in Marrakesh, Morocco, the International Monetary Fund (IMF) advised the Nigerian Federal Government to prioritize expenditures that safeguard low-income individuals from the adverse effects of rising energy prices.

Era Dabla-Norris, Assistant Director of the IMF’s Fiscal Affairs Department, acknowledged the Federal Government’s commendable move in eliminating the fuel subsidy. However, she emphasized the need for complementary policies that focus on allocating resources to protect vulnerable populations from the impact of high energy prices.

Dabla-Norris stressed that to mitigate the inflationary consequences of removing fuel subsidies, a comprehensive set of macroeconomic policies is required. This should include harnessing Nigeria’s untapped tax potential to enhance revenue generation and optimize debt service expenditures.

The IMF’s perspective is firmly rooted in the belief that prioritizing budget allocation for essential services, such as education and healthcare, is crucial to supporting the most vulnerable groups. Dabla-Norris highlighted that fuel subsidy reform freed up fiscal space for other forms of government spending, emphasizing the importance of targeted policies to safeguard low-income citizens from the burden of higher energy costs.

Furthermore, she underlined the significance of expanding the revenue-to-GDP ratio, which is relatively low compared to other emerging markets and developing nations. Achieving this involves gradually expanding tax bases, minimizing value-added tax exemptions, reducing tax expenditures, streamlining various types of taxes, enhancing tax institutions, and directing increased revenues toward priority spending. Additionally, she stressed the importance of effective monetary policies, eliminating central bank financing of the budget, and aligning policies to combat inflation effectively.

Dabla-Norris also proposed a reduction in debt service expenditures through the rationalization of spending and the reassessment of spending priorities.

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