The International Monetary Fund has urged the Federal Government to deepen reforms in the electricity sector, warning that the country’s continued practice of charging tariffs below cost-recovery levels is creating significant financial losses and exposing public finances to growing fiscal risks.

The recommendation was contained in the IMF’s 2026 Article IV Consultation Report on Nigeria, which our correspondent analysed on Saturday, following discussions with senior government officials, lawmakers, labour representatives, private-sector stakeholders and development partners.

According to the Fund, despite ongoing reforms in the power sector, the gap between electricity tariffs and the actual cost of supplying power continues to generate implicit subsidies that are weighing heavily on the economy.

The IMF noted that persistent collection challenges and non-cost-reflective tariffs have contributed to mounting liabilities in the sector. “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 Fund stated.

The Washington-based lender disclosed that electricity sector arrears had risen significantly, reaching 3/4 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.

The latest remarks are likely to reignite debate over electricity pricing in Nigeria, where previous tariff adjustments have triggered concerns among consumers and organised labour over the rising cost of living.

The IMF’s position comes at a time when the Federal Government is implementing reforms aimed at improving the financial viability of the power sector while attracting fresh investments into electricity generation, transmission and distribution infrastructure.

The Fund, however, stressed that reforms in the electricity sector should form part of a broader effort to strengthen Nigeria’s fiscal position and improve public financial management.

It said, “Going forward, further steps to strengthen the budget process, and fiscal transparency, governance and risks assessment are needed. Timely passage of the budget and phasing out the practice of overlapping budgets would strengthen budget implementation.

“Adopting annual reporting of general government fiscal data will allow fiscal monitoring at the national level and using fiscal policy as an active macroeconomic management tool. Continuing the efforts to eliminate spending outside the budget sphere and improve fiscal governance is needed.

“Establishing and maintaining an integrated fiscal risk management framework in line with IMF recommendations would help monitor risks, in particular from oil-backed loans and state-owned enterprises.”

The IMF added that strengthening fiscal governance would help authorities identify and manage emerging risks, including liabilities arising from the energy sector.

The report followed consultations between IMF officials and key Nigerian stakeholders, including former Minister of Power, Adebayo Adelabu, senior officials of the Federal Government and the Central Bank of Nigeria, members of the National Assembly, civil society groups, labour unions, private sector representatives and development partners.

Beyond tariff reforms, the IMF identified accelerated electricity sector reforms as one of the most critical measures required to unlock stronger and more inclusive economic growth.

The Fund noted that Nigeria’s authorities are targeting medium-term economic growth of between seven and 12 per cent, with infrastructure development, electricity reforms and support for small businesses forming key pillars of the government’s economic strategy.

According to the report, achieving those ambitions would require sustained investments in power infrastructure and policies capable of improving productivity across the economy. “Supporting longer-term growth and reducing fragility will require a productivity-led push,” the IMF stated.

It added, “Improving agricultural productivity through mechanisation, developing agriculture value chains and promoting research and development in agriculture will be critical for food security and jobs.

“Developing infrastructure and accelerating electricity sector reforms are key to stimulating private investment and boosting productivity. Increased spending on education and health and facilitating access to financing are also crucial for growth.”

The IMF further urged Nigeria to address security challenges affecting oil and gas production as well as agricultural activities, saying improved security would boost output and support economic expansion.

It also called for reforms to reduce bureaucratic bottlenecks in trade, including cumbersome export and import procedures, to enable the country to maximise the benefits of the National Single Window initiative.

Nigeria’s power sector has undergone a series of reforms aimed at improving electricity supply, attracting investment and reducing the heavy subsidy burden on government finances.

A major turning point came in June 2023 when President Bola Tinubu signed the Electricity Act 2023 into law, ending decades of exclusive federal control over the sector and allowing states to establish and regulate their own electricity markets. The law also opened opportunities for greater private sector participation across generation, transmission and distribution segments of the industry.

Since then, 16 states, including Enugu, Ekiti, Ondo and others, have commenced the process of setting up independent electricity regulatory commissions and state electricity markets in line with the provisions of the new law. The reforms are designed to decentralise electricity governance and encourage investments in power infrastructure.

The Federal Government also implemented one of the most significant tariff reforms in April 2024 when the Nigerian Electricity Regulatory Commission approved a substantial increase in tariffs for Band A customers, who are expected to receive a minimum of 20 hours of electricity supply daily. The move affected about 15 per cent of electricity consumers and was aimed at reducing subsidy payments and improving liquidity across the electricity value chain.

Government officials have argued that the tariff adjustment helped improve sector revenues and cut electricity subsidy obligations. According to the Minister of Power, the reform contributed to a 35 per cent reduction in electricity subsidies and generated hundreds of billions of naira in additional revenue for the market.

Despite these measures, the sector continues to grapple with mounting debts owed to generation companies, gas suppliers and other market participants, as well as inadequate transmission infrastructure, grid instability, metering gaps and poor revenue collection. These challenges have continued to constrain efforts to achieve a reliable electricity supply across the country.

The IMF’s latest recommendation suggests that while reforms have begun to address some of the sector’s structural weaknesses, authorities may need to pursue further tariff adjustments and broader market reforms to achieve full cost recovery and long-term financial sustainability.