LAGOS (Reuters) – Nigeria should remove untargeted fuel subsidies and channel resources to the poor, the International Monetary Fund said on Monday, warning that the budget deficit was expected to widen in 2021 despite a recovery in international crude prices.
With an election set for next year, Nigeria’s government last month rowed back on a promise to end costly subsidies of petrol by the end of June, a decision that has in the past led to violent protests.
The IMF said despite a recovery in oil prices, the fiscal deficit was expected to widen to 5.9% of gross domestic product in 2021, partly due to the subsidy on petrol. That compares with 5.7% in 2020.
“Directors also urged the removal of untargeted fuel subsidies, with compensatory measures for the poor and transparent use of saved resources,” the IMF said.
Nigeria’s economy was projected to grow by 3% this year, above initial IMF forecasts of 2.6% in November.
The IMF said Africa’s largest economy should increase its value-added tax, which at 7.5% remains one of the lowest in the world, and improve tax compliance to improve revenue collection.
Nigeria should also move towards a unified market exchange rate, it said, adding that this should be accompanied by policies to contain double-digit inflation and structural reforms to improve transparency.
(Reporting by MacDonald Dzirutwe; Editing by Alison Williams)
