IMF Urges Nigeria to Accelerate Power Sector Reforms
The International Monetary Fund has called on the Federal Government of Nigeria to deepen electricity sector reforms, warning that persistent below-cost-recovery tariffs are generating implicit subsidies that pose a growing contingent liability on public finances. The warning was issued in the IMF's 2026 Article IV Consultation Report on Nigeria, following discussions with senior government officials, lawmakers, labour representatives, private-sector stakeholders, and development partners.
Implicit Subsidies and Fiscal Risks
According to the Washington-based lender, the gap between electricity tariffs and the actual cost of supply continues to create implicit subsidies that weigh on the broader economy. The Fund stated: "Reforms in the energy sector are needed to reduce ongoing losses from the average tariff being below cost recovery and collection challenges, an implicit subsidy that constitutes a contingent liability."
The IMF disclosed that electricity sector arrears had surged to approximately three-quarters of one percent of Nigeria's Gross Domestic Product by the end of 2025. The report added, "At the end of 2025, electricity sector arrears were about 3/4 per cent of GDP, and are expected to increase by 1/2 per cent of GDP," indicating the problem is set to worsen without decisive intervention.
Root Causes: Collection Challenges and Tariff Gaps
The Fund attributed the mounting liabilities to two core issues: persistent collection challenges within the distribution network and tariff structures that fail to reflect the true cost of electricity supply. These factors have led to financial deterioration that is already measurable and escalating.
Broader Fiscal Reform Needed
The IMF stressed that electricity sector reform should not be treated in isolation but must form part of a broader strategy to strengthen Nigeria's fiscal position and improve public financial management. The latest remarks are likely to reignite debate over electricity pricing in Nigeria, where previous tariff adjustments have triggered strong pushback from consumers and organised labour groups already grappling with the rising cost of living.
The Federal Government is currently implementing a series of reforms aimed at improving the financial viability of the power sector while attracting fresh investment into electricity generation, transmission, and distribution infrastructure. However, the IMF's report signals that the pace and depth of those reforms remain insufficient to contain the sector's growing fiscal burden.
