IMF Sends Warning To Nigeria Govt Over Fuel Subsidy Return

The International Monetary Fund (IMF) has warned the Nigerian government against restoring petrol subsidy which was removed by the current administration three years ago.

This was just as the global financial organization asserted that the return of subsidy could worsen the country’s fiscal pressures and disproportionately benefit wealthier consumers.

However, the fund urged the government to adopt targeted interventions to protect vulnerable households from rising fuel and transportation costs instead of keeping petrol prices artificially low for all consumers.

Rodrigo Valdés, director of the IMF’s fiscal affairs department, gave the warning 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 spoke in response to concerns that allowing fuel prices to reflect supply constraints could increase transportation costs, fuel inflation and deepen poverty in Nigeria, particularly as calls grow for the government to restore petrol subsidies ahead of the 2027 general elections.

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

He explained that fuel subsidies and other measures that prevent energy prices from fully reflecting market conditions had cost countries between one per cent and 1.5 per cent of their 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 argued that governments should rely on social safety nets and household data to identify people who need financial assistance rather than subsidising fuel consumption across the board.

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

He also warned that broad subsidies could aggravate global energy pressures by discouraging consumers from adjusting their demand when fuel supplies decline.

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

Davide Furceri, a division chief in the IMF’s fiscal affairs department, also recommended targeted measures to cushion the effects of rising energy costs.

He said governments could redirect some of the resources spent on general fuel subsidies towards vulnerable consumers and specific sectors affected by higher prices.

“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 identified school feeding programmes, geographically targeted assistance and support for vulnerable farmers as other options governments could explore.

Furceri acknowledged that some countries lacked household registries and digital payment systems required to implement targeted interventions effectively. However, he said governments could adopt alternative short-term measures while developing the systems needed to deliver assistance more efficiently.

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

The IMF’s warning comes as the federal government faces scrutiny over its decision to introduce a 30-day petrol discount at Nigerian National Petroleum Company (NNPC) Limited retail stations. The government had said the initiative was designed to cushion the impact of rising global energy costs, with priority given to public transport operators.

Taiwo Oyedele, minister of finance, said NNPC retail stations would sell petrol at cost by foregoing their retail profit margins. He described the arrangement as temporary relief rather than a return to fuel subsidy.

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

Mohammed Idris, the minister of information, defended the discount on Monday during a media chat with senior editors and journalists, saying the initiative was intended to provide relief to Nigerians without reversing the government’s fuel subsidy removal policy.

“The NNPC has looked at it and said we are making this much profit. Why can’t we forgo some of the profit that we are making, so that Nigerians will have some form of cushioning?” Idris said.

He explained that NNPC Limited had chosen to forgo part of its profits to reduce the burden of higher petrol prices on consumers.

Idris said the administration of President Bola Tinubu remained committed to economic reforms while seeking to improve living conditions and expand access to affordable energy alternatives.

“Our approach is to consolidate the gains of these reforms, expand affordable energy alternatives, strengthen domestic production and create the conditions for sustainable reductions in the cost of living,” he said.