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IMF warns Nigerian govt against fuel subsidy as oil prices rise worldwide

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IMF downgrades forecast for Nigeria's economic recovery in 2021

Nigeria may not benefit from increased oil prices, according to the International Monetary Fund (IMF) if the government does not limit the amount of fuel subsidies it provides to citizens.

Nigeria and other countries in Sub-Saharan Africa will spend $19 billion more on fuel imports as a result of higher oil prices, according to the IMF on Thursday.

The Washington-based lender revealed this in a report headlined ‘Africa Faces New Shock as War Raises Food and Fuel Costs,’

“Net exporters, like Nigeria, are likely to benefit from rising oil prices, but a fiscal gain is only possible if the fuel subsidies they provide are contained.

“It is important that windfalls are largely directed to strengthen policy buffers, supported by strong fiscal institutions such as a credible medium-term fiscal framework and a strong public financial management system,” the report stated.

As a result of Russia’s invasion of Ukraine, countries in Sub-Saharan Africa are experiencing a rise in food and fuel prices, according to the IMF. Regional inflation is anticipated to remain at 12.2% in 2022 and 9.6% in 2023, according to the report.

Read also: World Bank cautions against Nigeria’s rising fuel subsidy payments

“Prices for food, which account for about 40 per cent of consumer spending in the region, are rising rapidly.

“Around 85 per cent of the region’s wheat supplies are imported. Higher fuel and fertilizer prices also affect domestic food production. Together, these factors will disproportionately hurt the poor, especially in urban areas, and will increase food insecurity.

“Higher oil prices will boost the import bill for the region’s oil importers by about $19bn, worsening trade imbalances and raising transport and other consumer costs.

“Oil-importing fragile states will be hit hardest, with fiscal balances expected to deteriorate by around 0.8 per cent of gross domestic product compared to the October 2021 forecast—twice that of other oil-importing countries,” the IMF explained.

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