IMF Warns Nigeria Against Restoring Petrol Subsidy, Backs Targeted Relief

The International Monetary Fund (IMF) has advised Nigeria against restoring broad petrol subsidies, recommending targeted financial assistance and social protection programmes to cushion vulnerable households against rising energy costs.

 

The fund warned that blanket fuel subsidies were fiscally expensive, disproportionately benefited higher-income consumers and could worsen pressure on public finances amid rising borrowing costs.

 

Rodrigo Valdés, Director of the IMF’s Fiscal Affairs Department, gave the advice on Wednesday during a press briefing on the fund’s Fiscal Monitor at the 2026 annual meetings of the IMF and World Bank in Bangkok, Thailand.

 

Valdés was responding to a question on the implications of allowing energy prices to reflect supply constraints, particularly in Nigeria, where rising petrol prices could increase transportation costs, fuel inflation and deepen poverty amid calls for the restoration of subsidies ahead of the 2027 general elections.

 

“Protecting people is not the same as protecting the price of fuels,” Valdés said.

 

He disclosed that fuel subsidies and other measures preventing energy prices from adjusting fully to supply shocks had cost countries between one and 1.5 per cent of gross domestic product in 2026.

 

“It’s first fiscally very costly, and second, if you look at the pattern of consumption, it’s easy to see that that subsidy is readily regressive in many places,” he said.

 

The IMF official urged governments to rely on social safety nets and household data to identify those who needed assistance instead of subsidising fuel prices for all consumers.

 

“There are better tools to deal with this,” he said.

 

The Federal Government recently announced a 30-day petrol discount at Nigerian National Petroleum Company Limited (NNPC) retail stations, with priority given to public transport operators, to ease the impact of rising fuel prices.

 

The Minister of Finance, Taiwo Oyedele, said NNPC retail outlets would sell petrol at cost by foregoing their retail profit margins, describing the measure as temporary relief rather than a return to fuel subsidy.

 

The government also proposed negotiating a ceiling of N1,350 per litre for petrol’s ex-gantry or landing cost, subject to monthly reviews.

 

The IMF further called for targeted interventions to reduce the impact of higher fuel prices on transportation and other essential household expenses.

 

Davide Furceri, a division chief in the fund’s Fiscal Affairs Department, said governments could redirect some of the resources spent on blanket subsidies towards vulnerable consumers.

 

He cited transportation support as one alternative, suggesting that governments could subsidise bus fares instead of reducing fuel prices for all consumers.

 

“For example, you mentioned transportation costs. Yeah, gasoline could go up, and perhaps bus fees may be subsidised in a way that is a much better policy at the end of the day than just a blanket subsidy for everybody,” Furceri said.

 

He also identified school feeding programmes, geographical targeting and assistance for vulnerable farmers as possible measures to protect households from rising living costs.

 

Furceri acknowledged that some countries lacked comprehensive household registries and digital payment systems needed to identify beneficiaries and deliver assistance efficiently.

 

However, he said governments could adopt alternative arrangements in the short term while developing stronger systems for distributing social support.

 

He stressed that such interventions should be limited, targeted and temporary.

 

Valdés also warned that fuel subsidies could intensify global energy pressures by discouraging consumers from adjusting their demand when supplies were constrained.

 

According to him, keeping fuel prices artificially low encourages consumption even when less fuel is available in the global economy, putting additional pressure on prices as markets adjust.

 

“When you subsidise, you don’t allow, at the end of the day, demand to adjust,” he said.

 

“And reality is that we have less fuels in the world economy. That means that someone else has to adjust more, and the market produces a higher price for that.”

 

The IMF maintained that broad fuel subsidies were not only costly and regressive but could also generate spillover effects across the global economy.