By Monsurat Abisoye
The International Monetary Fund (IMF) has urged the Federal Government to accelerate reforms in Nigeria’s electricity sector, warning that tariffs below cost-recovery levels are creating financial losses and increasing fiscal risks.
The recommendation was contained in the IMF’s 2026 Article IV Consultation Report, following discussions with senior government officials, lawmakers, labour unions, private sector representatives and development partners.
According to the Fund, electricity tariffs remain below the actual cost of supply, while poor revenue collection continues to generate implicit subsidies that are placing pressure on public finances. It disclosed that electricity sector arrears had risen to about 0.75 per cent of Nigeria’s Gross Domestic Product (GDP) by the end of 2025 and are projected to increase by another 0.5 per cent of GDP.
The IMF called for broader fiscal reforms, including improved budget implementation, greater fiscal transparency, annual reporting of government fiscal data, and the establishment of an integrated fiscal risk management framework to monitor liabilities, particularly those linked to oil-backed loans, state-owned enterprises and the energy sector.
The report also identified electricity sector reforms as a key driver of Nigeria’s medium-term economic growth target of between seven and 12 per cent. It said sustained investment in power infrastructure, alongside improvements in agriculture, education, healthcare, access to finance and security, would help boost productivity, attract private investment and support inclusive growth.
In addition, the Fund urged the government to tackle insecurity affecting oil production and farming, while reducing trade bottlenecks to maximise the benefits of the National Single Window initiative.
Nigeria has introduced several electricity reforms in recent years, including the Electricity Act 2023, signed by President Bola Tinubu, which allows states to establish and regulate their own electricity markets. Since then, 16 states, including Enugu, Ekiti and Ondo, have begun setting up independent electricity regulatory commissions.
In April 2024, the Nigerian Electricity Regulatory Commission approved higher tariffs for Band A customers to reduce subsidy payments and improve sector liquidity. Government officials say the move cut electricity subsidies by 35 per cent and boosted market revenue.
Despite these reforms, the power sector continues to face challenges such as mounting debts to generation companies and gas suppliers, inadequate transmission infrastructure, grid instability, metering shortages and weak revenue collection. The IMF said further tariff adjustments and wider market reforms may be necessary to achieve full cost recovery and ensure the sector’s long-term financial sustainability.