IMF Warns Nigeria Against Restoring Petrol Subsidy

Peter Uzoho

The International Monetary Fund (IMF) has advised Nigeria against restoring broad petrol subsidy, recommending targeted support for vulnerable households to cushion the impact of rising energy costs.

IMF said blanket petrol subsidies were expensive, often benefited higher-income consumers disproportionately and could worsen fiscal pressures amid rising borrowing costs.

Director of the IMF’s Fiscal Affairs Department, Rodrigo Valdés, gave the warning 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.

His comments followed a question on how the fund could recommend allowing energy prices to reflect scarcity when higher fuel prices in Nigeria could raise transport costs, worsen inflation and deepen poverty, particularly when the government was facing calls to restore petrol subsidy ahead of an election year.

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

He said fuel subsidies or measures preventing prices from adjusting fully to an energy shock had cost countries between 1 percent and 1.5 percent of gross domestic product (GDP) 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.

Valdés said governments should instead use social safety nets and household data to identify people who need assistance.

“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 (NNPC) Limited retail stations, with priority for public transport operators, to cushion the impact of rising fuel prices.

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

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

The IMF also recommended targeted interventions to cushion the effect of higher fuel prices on transportation costs.

A division chief in the fund’s fiscal affairs department, Davide Furceri, said governments could redirect some of the resources spent on blanket subsidies towards vulnerable 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 suggested alternatives such as school feeding programmes, geographical targeting and assistance for vulnerable farmers.

Furceri acknowledged that some countries lacked household registries and digital payment systems needed to deliver targeted support effectively.

However, he said governments could adopt alternative approaches in the short term while developing stronger systems.

He recommended that assistance should be limited, targeted and temporary.

Valdés explained that fuel subsidies could worsen global energy pressures by preventing demand from adjusting when supplies were constrained.

“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 official said subsidies were not only costly and regressive but could also have spillover effects on the global economy.