Nigeria’s external reserves drop by $410m in 14days, as IMF asks FG to remove subsidies early

International Monetary Fund (IMF) has asked the Federal Government to remove fuel and electricity subsidies completely from early next year and implement revenue-based fiscal consolidation.

This is also as the external reserves of the country resumed its drop, as it lost $410m in 14days from November 1 to November 14.

After rising by a record $5.05bn last month, Nigeria’s external reserves dropped by $410m in the past 14 days, the latest data from the Central Bank of Nigeria (CBN) have shown.

The CBN data revealed that the reserves dropped to $41.50bn on November 14 from $41.79bn on November 1.

The reserves, which had maintained a growth trajectory in recent months, increased from $36.78bn on September 30 to $41.83bn on October 29. It rose by $2.76bn in September from $34.02bn at the end of August.

Meanwhile, the IMF, in a statement at the end of its 2021 Article IV Mission, said with the emergence of fuel subsidies and slow progress on revenue mobilisation, the country’s “fiscal outlook faces significant risks”.

It said the continued reliance on administrative measures to address persistent foreign exchange shortages was negatively impacting confidence.

According to the Washington-based fund, without urgent fiscal and exchange rate reforms, the medium-term outlook faces sub-par growth.

It highlighted the need for major reforms in fiscal, exchange rate, trade and governance to alter what it described as “the long-running lackluster growth path”.

It said, “On the immediate front, fiscal and external imbalances require removal of regressive fuel and electricity subsidies, tax administration reforms and installing a fully unified market-clearing exchange rate.

“The complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor. The mission stressed the need to fully remove fuel subsidies and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act.”

The IMF said the implementation of cost-reflective electricity tariffs as of January 2022 should not be delayed.

“Well-targeted social assistance will be needed to cushion any negative impacts on the poor, particularly in light of still elevated inflation.

Nigeria’s past experiences with fuel subsidy removal, which have all been short-lived and reversed, underscore the importance of building a consensus and improving public trust regarding the protection of the poor and efficient and transparent use of the saved resources,” said IMF.

According to the IMF, the headline fiscal deficit is projected to worsen in the near term and remain elevated over the medium term.

“Despite much higher oil prices, the general government fiscal deficit is projected to widen in 2021 to 6.3 per cent of GDP, reflecting implicit fuel subsidies and higher security spending, and remain at that level in 2022.

“There are significant downside risks to the near-term fiscal outlook from the ongoing pandemic, weak security situation and spending pressures associated with the electoral cycle,” it said.

Federal Government has said the petrol subsidies have already been provided for in the 2022 budget up to June next year, according to Minister of Finance, Zainab Ahmed.