IMF Sounds Alarm over Nigeria's power sector, warns Electricity Subsidies Are Draining the Economy
- The IMF has warned that Nigeria's below-cost electricity tariffs are generating implicit subsidies that constitute a growing contingent liability on public finances
- The Fund's 2026 Article IV Consultation Report on Nigeria revealed that electricity sector arrears reached three-quarters of Nigeria's GDP by the end of 2025
- The IMF urged the Federal Government to deepen power sector reforms as part of a broader effort to strengthen Nigeria's fiscal position
Legit.ng journalist Victor Enengedi has over a decade's experience covering energy, MSMEs, technology, banking and the economy.
The International Monetary Fund (IMF) has called on the Federal Government of Nigeria to accelerate electricity sector reforms, warning that persistent below-cost-recovery tariffs are inflicting significant financial losses and exposing public finances to rising fiscal risks.
The recommendation was contained in the IMF's 2026 Article IV Consultation Report on Nigeria, which was analysed following discussions the Fund held with senior government officials, lawmakers, labour representatives, private-sector stakeholders, and development partners.
Source: UGC
According to the Washington-based lender, the gap between electricity tariffs and the actual cost of supplying power continues to generate implicit subsidies that are weighing on the broader economy.
The Fund stated in the report:
"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."
Nigeria's electricity sector arrears surge
The IMF disclosed that the financial deterioration in the sector is already measurable, with electricity sector arrears rising sharply to reach approximately three-quarters of one per cent of Nigeria's Gross Domestic Product by the end of 2025.
"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," the report added, signalling that the problem is set to deepen without decisive intervention.
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.
Broader fiscal reform push
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.
The IMF's report, however, signals that the pace and depth of those reforms remain insufficient to contain the sector's growing fiscal burden.
Source: Legit.ng
